137027166-Global-Trade

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Globalization in Food Chain Industry

McDonalds (INDIA)

A report submitted to Prof G. Srinivasan, Lecturer, Faculty of International Trade & Forex

management, NITIE,Mumbai, in part-fulfillment of the requirements of the final examination of

International Trade & Forex management.

Prepared and submitted by

Bhaskar Puggal

Roll No.- 120

IE-42 Course Instructor

Prof G. Srinavasan

NITIE ,Mumbai

Date of Submission

23nd

Dec, 2013

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Abstract

Globalization has affected almost every aspect of life in almost every nation. From economic to

social to culture, this widespread exchange of goods, services and ideas have influenced changes

around the world. Even though the cultural influence in globalization is of slight significance to

policy makers, its power has tremendous consequences to the nations involved and its

people. Food is an important element in defining culture. Food is the oldest global carrier of culture. Any changes in the foods that we eat, in its preparation, the way it is served and consumed diminishes the traditional beliefs of the people.

One of the most influential changes came with the introduction of fast food restaurants

like McDonalds into foreign countries. Transformations have taken place which could be perceived as beneficial or corrupting to that culture. According to William Gould (1996), before

the introduction of McDonalds overseas fast food was almost unknown. McDonalds is the first company to try to export Americas love of fast food and changes in eating habits of other nations. McDonalds has over 1.5 million franchises in the United States and about half of the total franchises are outside the U.S. in over 120 countries.

Reasons for selecting this company are its sound operational practices with innovative marketing

strategies, its image as leading global foodservice company and one of the strongest and most

recognized brand names in the world, its successful creation of its brand, its extension and

expansion strategies and its successful operations in India.

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Table of Contents

Title page: ..1

Letter of Transmittal: .2

Abstract: .3

Table of Contents: ..4

1.0 Introduction: ..5

2.0 Body 2.1 Country Profile: ..............................................................6

2.2 Macro-environmental Factors (PESTEL)7

2.3 Leading Industries (Top Five)...10

2.4 Industry Analysis (Chosen One)12

2.5 Competition Analysis (Within The Industry)13

2.6 Government Rules and Regulations Regarding Entry Modes...17

2.7 Selective Strategy: 19

2.8 Recommendations: 20

2.9 SWOT analysis in terms of their economic condition:..21

2.10 Competition Analysis (within industries): 23

3.0 Recommendation: .....24

4.0 Conclusion: ...27

5.0 Bibliography: 28

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Introduction

Fast food is the term given to food that can be prepared and served very quickly. While any

mean with low preparation time can be considered to be fast food, typically the term refers to

food sold in a restaurant or store with low quality preparation and served to the customer in a

packaged form for take-out/take-away. Outlets may be stands or kiosks, which may provide no

shelter or seating or fast food restaurants (also known as quick service restaurants). Franchise

operations which are part of restaurants chains have standardized foodstuffs shipped to each

restaurant from central locations. The capital requirements involved in opening up a fast food

restaurant are relatively low. Restaurants with much higher sit-in ratios, where customers tend to

sit and have their orders brought to them in a seemingly more upscale atmosphere may be known

in some areas as fast casual restaurants.

In October 1996, McDonalds opened its first Indian outlet in Vasant Vihar, an affluent residential colony in Indias capital, New Delhi. As of November 2004, McDonalds has opened a total of 58restaurants, mostly in the northern and western part of India.

While McDonalds opened 34 restaurants in five years (by 2001), 58 restaurants in eight years (by 2004), it is now planning to add more than 90 new restaurants in the next three years.

Although the initial scenes of crowds lining up for days outside the McDonalds restaurants in Delhi and Mumbai are no longer seen, Indian consumer response to McDonalds products still remains very strong. The growth of McDonalds in India is not as rapid as in China, nevertheless impressive. How did McDonalds do it? How did a hamburger chain become so prominent in a cultural zone dominated by non-beef, non-pork, vegetarian, and regional

foods such as cholabhatura, kababs, bhaji, samosa, dosa, vada, sambar, bhelpuri, and rice? The

answer to this question lies in McDonalds carefully planned entry and expansion strategy in accordance with Indias changing political, economic, and cultural landscape in the 1990s.

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Country Profile India. It is the seventh-largest country by area, the second-most populous country with over 1.2

billion people, and the most populous democracy in the world. Bounded by the Indian Ocean on

the south, the Arabian Sea on the south-west, and the Bay of Bengal on the south-east, it shares

land borders with Pakistan to the west; China, Nepal, and Bhutan to the north-east; and Burma

and Bangladesh to the east. The island countries of Sri Lanka and the Maldives are to the south;

in addition, India's Andaman and Nicobar Islands share maritime borders with Burma, Thailand

and Indonesia.

Home to the ancient Indus Valley Civilization and a region of historic trade routes and vast

empires, the Indian subcontinent was identified with its commercial and cultural wealth for much

of its long history.[8] Four of the world's major religionsHinduism, Buddhism, Jainism, and Sikhismoriginated here, whereas Zoroastrianism, Christianity, and Islam arrived in the 1st millennium CE and also helped shape the region's diverse culture. Gradually annexed by and

brought under the administration of the British East India Company from the early 18th century

and administered directly by the United Kingdom from the mid-19th century, India became an

independent nation in 1947 after a struggle for independence that was marked by non-violent

resistance led by Mahatma Gandhi.

The Indian economy is the world's eleventh-largest by nominal GDP and third-largest by

purchasing power parity (PPP). Following market-based economic reforms in 1991, India

became one of the fastest-growing major economies; it is considered a newly industrialized

country. However, it continues to face the challenges of poverty, illiteracy, corruption, and

inadequate public healthcare. A nuclear weapons state and a regional power, it has the third-

largest standing army in the world and ranks ninth in military expenditure among nations. India

is a federal constitutional republic governed under a parliamentary system consisting of 28 states

and 7 union territories. India is a pluralistic, multilingual, and multiethnic society. It is also home

to a diversity of wildlife in a variety of protected habitats.

Country Facts

Area: 3,287,623m sq km (1,269,219 sq miles)

Population: 1.21 billion (provisional Government of India Census data, 2011)

Capital City: New Delhi

Languages: The official language of India is Hindi, written in the Devanagari script and spoken

by some 30% of the population as a first language. Since 1965 English has been recognised as an

'associated language'. In addition there are 18 main and regional languages recognised for

adoption as official state languages.

Religions: India is a secular state and freedom of religion is protected under the Constitution.

The main religious groups are Hindus (80.5%), Muslims (13.4%), Christians (2.3%) and Sikhs

(1.9%).

Currency: Rupee

Government: United Progressive Alliance, a Congress-led coalition.

Head of State: President Pratibha Patil

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Prime Minister: Prime Minister Manmohan Singh

Macro Environmental factors (PESTEL)

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 McDonalds 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 McDonalds 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 McDonalds Stores with reference to the existing employment laws in the target market. Like any business venture, these McDonalds 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

Organizations 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 McDonalds 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 McDonalds 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 companys 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 McDonalds. Moreover, it is imperative that the company be

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cognizant of the existing tax requirements needed by the individual governments on which they

operate. This basically ensures the smooth operations of the McDonalds 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, these franchises must take on certain adjustments to maintain the

economies of scale.

C. Socio-Cultural Factors

Articles on the international strategies of McDonalds seem to function on several fields to guarantee lucrative returns for the organization. To illustrate, the organization improves on

establishing a positive mind-set from their core consumers. McDonalds indulge a particular variety of consumers with definite types of personalities. (1994) .It has also been noted that the

companies have given the markets such as the United Kingdom, an option with regards to their

dining needs. (2005) pointed out that McDonalds 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 McDonalds 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 McDonalds they establish a good system in determining the needs of the market. The company uses concepts of consumer behavior 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 organization in a particular market. (2000)

D. Technological Factors

McDonalds generates a demand for their products. (2006) The Companys key tool for marketing is by means of television advertisements. There are similarly some claims that

McDonalds 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 Ham burglar. Other advertising operations

employ popular celebrities to promote their products. The like has become endorsers for

McDonalds worldwide loving it campaign. Moreover, the operations of McDonalds 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 tends to add value to their products. Basically, this is

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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 McDonalds 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 McDonalds 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 McDonalds 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 McDonalds 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, McDonalds Hong Kong went over the Styrofoam used by both Australia and the United States combined.

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Leading Industries in India

Since the advent of industrialization in India we have witnessed setting up of many new

industries in various sectors. Indian industrialists after the 65 years of independence have come a

long way. Some sectors have developed and some are still developing. Most of the sectors have

even attracted foreign investments to the country. Following is an insight to some of the top

increasingly booming industries in India.

Tourism

Tourism is one of the most important industries to any country as it is the best source for inflow

of foreign currency into the country. A tourist, with him brings foreign currency and thus his

every little spending is contributing in a better way to the countrys economy. Its contribution is

around 6.23 % to the national GDP and generates 8.78% of the total employment. It is estimated

that around US $375.5 billion will be generated by this particular sector by 2018. India being

such a large and diverse destination has become a major attraction for tourists all over the world.

The fact that it has 28 different states, and each one has a different and a unique culture of its

own, adds to the curiosity of the tourists. There have been efforts to increase new forms of

tourism such as rural, medical and eco-tourism. Medical tourism over the years has attracted a

large chunk of tourists to Asia especially for plastic surgeries. India, despite having some of the

world class medical facilities has suffered due to its low levels of sanitation. This remains one of

the biggest hurdles in development of medical tourism here. But one of the major challenges is

of security of the tourists. Domestic tourism is over 800 million. Another challenge is shortage of

hotels and tourist accommodation places in the country. Lately, government has also started

promoting tourism and awareness about tourism in country under the program of Incredible

India.

Power Generation

Electricity has become one of the most basic necessities of ones life today. India has the 5th

largest power consuming market in the world. In the 11th five year plan, the planning

commission displayed electricity for all till 2012 as the aim of government but 2012 has

arrived and we are not even close to this goal. Power generation sector provides great

opportunities to the investors as it promises higher returns. Coal, despite being termed as major

pollutant still continues to generate 55% of total power generated. Though government has taken

steps to generate electricity from hydro, nuclear and solar energy but there share is still very low

as compared the thermal energy.

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Hospitality industry

With increasing tourism and with the advent of modern life styles and westernization this

particular sector has witnessed a sudden and massive boom.

Hospitality industry is one of the worlds largest service generating sectors. In India though it is

new but people are investing in it and also more people are opting for hotel management course

to enter this promising industry.

This sector can be divided into two; the entertainment and accommodations sectors. Discs, bars

hotels have become part of the urban lifestyles. On the other hand with an increase in tourism in

India has lead to need of more hotels and infrastructure.

Animation industry

This particular sector has witnessed a much required boom over the past few years. With the

increasing use of 3D technology in movies and many other animation technologies, this industry

has managed to create a demand for creative animators, and other technicians.

According to a study this industry is growing at rate of 30% annually.

A slight government help to the animation industries in terms of loan can provide a further

increase and profit to new but rapidly growing industry.

Food processing industries

Food processing industry is another rapidly growing industry in India. The central government

has taken many steps to increase the growth of this sector for e.g. they treat all the agro

processing industries with a greater priority and responsibility. This has to some extent brought

more organizational factor into the food retail and agricultural sector. This is one sector which

has faced a rapid increase in the foreign direct investments. Also, over the time there has been an

ever increasing demand of such goods in the Indian market. This industry is growing swiftly and

is estimated to cross $200 billion till 2015. This sector currently faces major problem fetching

proper investment at various stages of supply. More upgraded technology is the current need of

the hour.

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Industry Analysis

Food Chain Industry

The food services sector in India is expected to witness a 50 per cent increase in investments in

2012 to about US$ 750 million, as food suppliers and retail companies plan to scale up business

and stay competitive by tapping the large potential of the domestic market. Of the total

investments of US$ 750 million in 2012, about US$ 165 million has gone into purely front-end

retail, such as fast moving consumer goods (FMCG), food and beverage firms.

India is the world's largest milk producer, accounting for around 17 per cent of the global milk

production, according to RNCOS research report titled, 'Indian Dairy Industry Analysis'. The

study anticipates that the milk production in India will grow at a compound annual growth rate

(CAGR) of around 4 per cent during 2011-2015.

Further, India has emerged as one of the largest potential markets for organic food consumption

globally. The organic food is invariably catching up pace among the Indian retailers, especially

with the niche retailers owing to wide awakening among Indian consumers towards leading a

healthy life, as per RNCOS research report titled, 'Indian Organic Food Market Analysis'. We

anticipate that the sector will post significant growth during 2011-2013, growing at a CAGR of

15 per cent.

Indians spend US$ 64 billion annually on eating out, which includes $13 billion on eating in

quick-service restaurants (QSRs) such as McDonald's and Costa Coffee, propelling the industry

to grow at 25-30 per cent annually, according to Euromonitor.

Key Players

The major players operating in the Indian food and beverages industry include Dabur India Ltd,

Godrej Industries Ltd, Hindustan Lever Ltd, Britannia Industries Ltd, ITC Ltd, Nestle` SA,

PepsiCo, Inc, Cadbury Schweppes PLC, Future Group, RPG Enterprise and Godrej Agrovet Ltd.

Among recent investments, World Bank arm IFC has reportedly put in US$ 6.5 million into

food-supply chain firm Snowman Logistics. Other similar investments include Swastik

Roadlines (India Equity Partners) and JICS Logistics (IL&FS Private Equity) and Staragri

Warehousing and Collateral Management Ltd (IDFC Private Equity).

The world's largest fast-food chain - McDonalds, is shedding its familiar red and yellow colors

for more muted tones as it goes for its biggest and costliest revamp in India, in line with its

global strategy of attracting more adults. The red and yellow company logo will be replaced with

white across 240 restaurants.

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Competition analysis (Within the industry)

One of the major competitors for McDonald in the burger segment is KFC. It first came to India

in 1995, where it was one of the first multinational food chains to have entered India. It proved

not to be a very good time to have come to India where people were still not able to come to

terms with multinationals coming to India, and it was targeted by many and remained a not so

known food outlet, while the ones which came later became more popular. KFC India had to shut

shop in the late 1990s after it faced heavy protests not only from anti-multinational groups but

also animal rights protector, PETA.

But unlike McDonald, KFC has not been able to establish itself and shun its image of being a beef burger shop. McDonalds is clearly poised well in terms of appeal to the majority of the Indian population, 40% of which is vegetarian.

McDonalds has a wider variety here with products starting from as low as Rs 20, while KFC has not been able to match that. KFC is still priced a little higher for the general Indian population

and its strong customer segment is the cosmopolitan population which is mall going and earning

or have spare money to spend, 18-30 years. While people from even small income range and

lower middle class have been able to associate themselves with McDonalds. McDonalds has set up its own supply chain investing huge amount which leads to lower costs and prices.

When it comes to chicken burgers McDonalds needs to provide more variety on its menu as it is claimed that KFC is coming up with 15-20 new Indianised products.

McDonalds has more than 140 restaurants in India and is adding at a fast pace, while KFC has presence only in limited areas especially the southern part of the country.

KFC claims that even without much promotion it has the strongest brand recall for chicken

products. KFC even sponsored a contest during a cricket match, and is a well known brand in the

southern part.

Following is the marketing mix of KFC:

Product

Zinger is its flagship product Famous for its chicken recipe world over Brought high selling products from international markets Indianized menu with products like tikka wrap n; roll, chana snacker, thali, succulent chicken Vegetables, one-of-a-kind kids meal comes in several different laptop box designs featuring awesome puzzles and games.

The veg products are juicy from inside and crispy on outside which differentiates KFC Distinguished manufacturing for beg and non veg products Planning to add 15-20 new products to menuPrice Low priced to target the huge middle class as well as upper class population of India Has sub 50 snackbox, and chana snacker at Rs. 25 Offers Veg and non veg thali at Rs 50 Twirl priced at Rs. 7Place There are around 40 restaurants in the country

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Strong hold in Mubai, Hyderabad, Bangalore Planning to add 10 restaurants per year and reach 50 by 2008 Targeting non veg eating states e.g. West Bengal, Punjab, Andhra Pradesh, Tamilnadu besides the cities where it is already present.

Has switched to franchisee model Expanding and opening stores in malls

Promotion

Has started a TV campaign, following which sales surged by 30% Promotion is centered around Finger Licking Good Targets mall going population i.e. youth in the age group 18-30 Food courts are sporting the logo of KFC Also sponsors cricket matches and related contests

Local Food Joints

Another major competitor for McDonald are the local food joints offering burgers. The local

food joints include the following:

1. Joints which are limited to a city and have around 2 -3 outlets in a city. For instance Om Sweets in Gurgaon will come in this category. 2. Canteens in colleges.

Following is the marketing mix for the local food joints:

Product

The burgers are made of local buns with cheese slices and vegetables like onion, cucumber and tomato slices and a potato or chicken cutlet.

There are two or three variations on the basis of amount of cheese The burgers are wrapped in local paper napkins The ingredients used are Indian for instance burger has no mayonnaise. These cater to Indian tastes.

The offering is generally one of the several other offerings at the joint The time taken to deliver varies from 10 15 minutes

Price

The price ranges from as less as Rs 12 to a max around 50. Om Sweets offers the burger for Rs 45Place

These joints are generally located in market places or college campus where crowd is heavy. They are the most famous and one of the few outlets available in area and footfalls are generally heavy due to these

The places are usually visited very frequently by local people, students, etc

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Promotion

The joints rely on word of mouth publicity There is no promotion done through ads for these joints. The promotion at maximum is limited to local newspaper

Suggestions

McDonalds could increase the number of items served on its menu. Currently there are only 6 vegetarian and 6 non-vegetarian items served on the menu. It is also evident from the survey that

many people feel that the variety of menu available is average and could be improved. Some of

the customers prefer something new every time they visit. These potential customers could be

targeted by increasing the number of items in the menu.

In the recent times McDonalds has been blamed for the high fat content in its products and many consumers perceive that the food served at their outlets is not healthy. Also, the consumers

are becoming increasingly health conscious these days. McDonalds could introduce new items

for such people containing lower fat content and lower calories, like calorie free burgers and

salads. This could attract a whole new segment of health conscious people to its outlets.

They could introduce items containing egg in their menu which could target people who eat egg and do not eat chicken. It would also add more variety to their current menu.

McDonalds currently has a number of outlets in northern and western India. The number of outlets in southern and eastern parts of the country is significantly very low. They need to

increase their presence in southern and eastern India where their competitors like KFC, Pizza

Hut and Dominoes enjoy a larger market presence. They also need to modify their Indian menu

for these parts of the country as the names of the current menu items are more synonymous to

food available in northern and western India.

Considering the low cost of food available at McDonalds it could even look at expanding into tier-2 and tier-3 cities which are largely unexploited by other fast food companies. There may be

stiff competition from the local food joints in these places which McDonalds can overcome by

offering localized food at competitive prices.

The option for home delivery is currently not available in all areas. There is also an additional Rs. 15 that is levied for the delivery in the areas where it is available. In comparison some of its

competitors offer free home delivery in specified time and also in all their outlets. McDonalds

could learn from its competitors and provide free home delivery in all its outlets at no additional

cost in order to attract people who prefer to have food at the comfort of their home or office. This

could also reduce overcrowding at their certain outlets where many people wait for their turn for

dine in or takeaway.

Future Outlook

McDonalds India has been able to establish itself in the market with 137 restaurants in the country and plans for expansions to smaller cities and further in metros. Planning 15 new outlets

in Kolkata alone is indicative of its expansion plans. McDonalds plans to invest $3 billion over

next five years and double its revenue by 2010. The expansion plans are in sync with the

booming economy.

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The future outlook is bright considering the rising middle class and development going across

the country. The number of multiplexes in the country is growing day by day through which

McDonalds can expand. Moreover, the working population is also increasing. Most of them are

looking for alternatives to home cooked food which could save them a lot of time between

working hours. Therefore McDonalds will find a great opportunity to leverage its brand popularity to increase its sales even further.

The challenge which McDonalds may face in future will be the expansion to tier 2 and tier 3 cities. McDonalds brand, which is very strong across big cities, may not be as strong there. The concept of fast food will also be relatively new to smaller cities which have slower life than

metros. Fast food in smaller cities is synonymous to Chinese served by small vendors. The

primary competition will also be very different in smaller cities. The competition will be from

local food to a much larger extent. The pricing which is a critical strength in metros may not

remain strength. The opportunity lies hidden in the challenge and being a pioneer in fast food

segment in smaller cities, McDonalds can achieve greater heights. In the larger cities and metros McDonalds is well established and should experience a steady growth if it continues to fulfill the changing needs of its consumers which it has been doing over

the past.

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Government Rules and Regulations Regarding Entry Modes:

Food processing and agro industries have been given high priority by the government with a

number of important incentives and subsidies being made available. Some of the important

policy changes regarding the 6 types of entry mode are as follows:

Regulation and Control

FDI up to 100 % is permitted under the automatic route in the food infrastructure (Food Park, cold chain / warehousing)

Automatic approval to FDI up to 100 % equity in FPI sector excluding alcoholic beverages and a few reserved items

Foreign investments are allowed in SSI reserved items under an export obligation (pickles, chutneys, bread, pastry, hard-boiled sugar candy, rapeseed oil, sesame oil, groundnut oil,

sweetened cashew nut products, ground and processed spices other than spice oil and oleoresin,

tapioca sago and its flour)

FDI up to 100% is permitted on the automatic route for distillation & brewing of alcohol subject to licensing by the appropriate authority

No industrial license is required for almost all the food & agro processing industries except for some items like beer, potable alcohol, wines and cane sugar.

Animal fats & oils and items reserved for exclusive manufacture in the small-scale sector. Up to a maximum of 24% foreign equity is allowed in SSI sector. Fiscal policy and taxation:

Rupee is now fully convertible on current account and convertibility on capital account with unified exchange rate mechanism is foreseen in coming years

Repatriation of profits is freely permitted in many industries except for some, where there is an additional requirement of balancing the dividend payments through export earnings

Liberal corporate tax policy is applicable for export and domestic earnings, income tax rebate allowed

(100% of profits for five years and 25% of profits for the next five years) for setting up of new

agro processing industries to process and package fruits & vegetables

Fruits & vegetables, and dairy machineries are completely exempt from central excise duty. Central

Excise duty on preparation of meat, poultry and fish, pectin and yeast is also completely exempt.

Quantity restrictions on all food products have been removed. Peak rate of customs duty has been reduced from 30% to 25% (excluding agricultural and dairy products) and duty structure on

designated items has been rationalized.

Customs duty on refrigerated goods transport vehicles has been reduced from 20% to 10% Excise Duty of 16% on dairy machinery has been fully waived off and excise duty on meat, poultry and fish products has been reduced from 16% to 8%.

Export promotion

Food-processing industry is one of the thrust areas identified for exports. Free Trade Zones (FTZ) and Export Processing Zones (EPZ) have been set up with necessary infrastructure. Also,

setting up of 100% Export Oriented Units (EOU) is encouraged in other areas. They may import

free of duty all types of goods, including capital foods.

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Capital goods, including spares up to 20% of the CIF value of the capital goods may be imported at a concessional rate of customs duty subject to certain export obligations under the

EPCG scheme.

Export linked duty free imports are also allowed.

Units in EPZ / FTZ and 100% EOU can retain 50% of foreign exchange receipts in foreign currency accounts

50% of the production from EPZ, FTZ and 100% EOU units, are saleable in domestic tariff area

All profits from export sales are completely free from corporate taxes and also exempt from MAT

Setting up of 60 agricultural zones for end-to-end development for export of specific product from geographically contiguous areas. 53 food parks were approved to enable small and medium

F & B units to set up and use capital intensive common facilities such as cold storage,

warehouse, quality control labs, effluent treatment plant, etc. 100% Automatic FDI is allowed for

setting up of Industrial parks as well

Regulatory framework

There are different laws that govern the food-processing sector in India. The prevailing laws and standards adopted by the Government to verify the quality of food and drugs is one of the

best in the world. Multiple laws / regulations prescribe varied standards regarding food additives,

contaminants, food colors and preservatives and labeling.

In order to rationalize the multiplicity of food laws, a Group of Ministers was recently set up to suggest legislative and other changes to formulate a modern, integrated food law, which will

be a single reference point in relation to the regulation of food products. The food laws in India

are enforced by the Director General of Health Services, Ministry of Health and Family Welfare,

Government of India (GOI).

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Selective strategy

Key elements of McDonalds strategies

Adding 700-900 restaurants annually Being highly selective in granting franchises Focusing on limited product line & consistent quality Careful attention to store efficiency Extensive advertising & use of Mc prefix Hiring courteous personnel; paying an equitable wage; & providing good training

McDonalds product strategy

Friendlily, fast-served healthy food Consumers like-dislike, taste, preference, health etc. are taken into consideration. Provides quality food Adapts itself to the local culture Resources to get the Job Done

McDonalds pricing strategy

Value-pricing Very large cross section of the Indian population can afford it. Does not sacrifice quality for value

McDonalds Place strategy

Strategic location Environment at the restaurant Games on every table Clean, comfortable environment especially suited for families.

McDonalds Promotion strategy

Limited value menus, promotional games Using new menu items, low price specials, Extra Value Meals Donations, charity functions Celebrates McDonalds happy day Focuses its ad campaigns on its overall Mc Donald experience and active life style.

Other strategies

"Better, not just bigger To Experiment with new technology and to research new markets

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Recommendations

McDonald's tend to import much of their raw materials from different places. If it uses local

sources and products, it can reduce exchange rate fluctuations that will play a significant role in

the operations of the company. This will provide more employment to local people that can

improve the image further. McDonald's also has to take a great deal of consideration with

reference to its macro environment and microenvironment. It has to establish a good system in

determining the needs of the market and use concepts of consumer behavior product personality

and purchasing decisions to its advantage. Advertisement in the media with regards to local

requirements can also help boost its business. McDonald's should apply a more careful

consideration on their corporate social responsibilities. On the whole, this will address the need

of the company to form its corporate reputation to a more positive one and a more socially

responsible company. Participating, endorsing and funding charities, festivals and other activities

can help increase its reputation. Although the company has provided its customers the relevant

data that they need with reference to the nutritional substances of their products, they should

provide information in details on the menu and on the website. This will deliver freedom in

choosing whether or not consumers want to purchase meals. Obtain the relevant information

from the target market in addition to the individual customers of the organization. A well drafted

and comprehensive market research should be conducted 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 behavior and purchasing patterns of the

market. 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. Another effort for

McDonald's to do is to keep its stores fresh and contemporary as styles, colors, decors and

technology change. The company should constantly renovate, rebuild and relocate some of its

restaurants to keep up with the environmental and technological changes. 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. Hire local counsels to deal with the legal conflicts in

individual markets on which the company may encounter. In order to be successful, it has to

consider all the important social and cultural issues. McDonald's also has to focus upon its

dealing of environmental issues. To be successful, it needs to resolve the social, ethical, political,

and other environmental issues discussed above, effectively. Lastly, it may focus on younger

consumers and try to target their preferences. Young generation especially kids like to come to

McDonalds often. By targeting them, the company can increase its customers and generate more

revenue.

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SWOT Analysis

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

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

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

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 modeling and profiles of shoppers) and

prevent brand switching

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 childrens 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.

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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.

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Competition Analysis (within industries)

The inefficient of this strategy is that it very costly due to the extensive research and

development considering that there are other local competitors already in the market offering

local cuisines. The perceptions of locals for foreign companies can be detrimental in terms of

culture. As witnessed, in India beef is sacred, meaning that McDonalds had to change and offer something else so not to lose customers and legal actions. In Muslin countries, they do not eat

pork hence not embracing their culture would mean loss and failure to localize.

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Recommendation

Steps Taken to Globalize Indian Economy

Devaluation: To solve the balance of payment problem Indian currency were devaluated

by 18 to 19%.

Disinvestment: To make the LPG model smooth many of the public sectors were sold to

the private sector.

Allowing Foreign Direct Investment (FDI): FDI was allowed in a wide range of sectors

such as Insurance (26%), defense industries (26%) etc.

4. NRI Scheme: The facilities which were available to foreign investors were also given

to NRIs.

India opened up the economy in the early nineties following a major crisis that led by a foreign

exchange crunch that dragged the economy close to defaulting on loans. The response was a slew

of Domestic and external sector policy measures partly prompted by the immediate needs and

partly by the demand of the multilateral organizations. The new policy regime radically pushed

forward in favor of a more open and market oriented economy.

Major measures initiated as a part of the liberalization and globalization strategy in the early

nineties included scrapping of the industrial licensing regime, reduction in the number of areas

reserved for the public sector, amendment of the monopolies and the restrictive trade practices

act, start of the privatization program, reduction in tariff rates and change over to market

determined exchange rates.

Over the years there has been a steady liberalization of the current account transactions, more

and more sectors opened up for foreign direct investments and portfolio investments facilitating

entry of foreign investors in telecom, roads, ports, airports, insurance and other major sectors.

The Indian tariff rates reduced sharply over the decade from a weighted average of 72.5% in

1991-92 to 24.6 in 1996-97.Though tariff rates went up slowly in the late nineties it touched

35.1% in 2001-02. India is committed to reduced tariff rates. Peak tariff rates are to be reduced to

be reduced to the minimum with a peak rate of 20%, in another 2 years most non-tariff barriers

have been dismantled by March 2002, including almost all quantitative restrictions.

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McDonalds has given the adage of think global, act local a concrete shape in India. The companys localization strategy is clearly manifest in the critical area of management. McDonalds decided to set up two joint ventures on a [50:50] basis with two local entrepreneurs in Mumbai and Delhi. In Mumbai, Amit Jatias company, Hardcastle Restaurants Private Limited, was selected to own and manage McDonalds restaurants in the western region. In Delhi, Vikram Bakshis Connaught Plaza Restaurants Private Limited was chosen to own and manage McDonalds restaurants in the northern region. Both Vikram Bakshi and Amit Jatia are responsible for running McDonalds in India. Vikram Bakshi has extensive background in real estate development in Delhi, while Amit Jatia, a vegetarian, has a chemicals and textile

business background in Mumbai. It was not their backgrounds, however, that won the confidence

of the Big Macs management. Rather, it was their business plan emphasizing India-centric management strategies and their easy access to bureaucracy so critical to effective government

relations building.

In the beginning, McDonalds was faced with two challenges of the Indian market: (1) how to avoid hurting religious sensibilities of Indian consumers; and (2) how to avoid political

confrontation with Indian government and political activists. McDonalds managers were well aware of the fact that political activists can create trouble for foreign-based fast food

chains, as demonstrated in the case of politically organized agitation against KFC in Bangalore

in January 1996. With two local managing directors (Bakshi and Jatia) playing critical roles,

McDonalds took a series of politically correct strategies to deal with the initial challenges of the Indian market. Since Indias majorities Hindus (80% of Indias population) revere cows as sacred and 150 million of Indian Muslims do not eat pork, beef and pork have been a complete no-no from the start. Instead, McDonalds introduced a mutton-based Maharaja Mac in India, as opposed to its flagship beef-based Big Mac elsewhere.

Other items such as the tantalizing McAloo Tikki Burger (breaded potato and pea pattie) were

added to the menu to lure Indias middleclass. Approximately 75% of the menu available in McDonalds in India is Indianized and specifically designed to woo Indian customers

McDonalds is an excellent example of franchises in the domestic fast-food industry. It operates primarily on this highly standardized basis. As indicated in the case study, McDonalds 80% of its 32,278 restaurants around the world are franchises while only 20% are company-owned. The

advantages of are low political risk, low costs involved, fast and easy avenue for leveraging

assets such as brand name.. It gave McDonalds the advantage to extend control of its strict business rules over the menu, cooking methods, staffing policies, design and location.

Furthermore, the benefit of organizing and selecting the supply chain, providing management

training and financial assistance for its franchisee. This gave it more advantage to maintaining a

highly collaborative relationship with its franchisees and making franchising decisions based on

whats best for its customers.

The disadvantage is franchisors image may be tarnished due to franchisee not upholding standards. As a result, customers and even prospective customers may be driven away by service

delivery inconsistencies where the franchisee does not respect the agreed strict business rules.

Furthermore, it limits a firms ability to implement a coordinated strategy to facilitate entry into

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multiple foreign markets. A critical consideration for the McDonalds management is quality control, which becomes more difficult with greater geographic dispersion. Also, costs could be

high due to training development, promotional and support activities of the franchisee,

geographic dispersed owner-managers inhibits global strategic coordination in detecting poor

quality and inefficient operations. However, McDonalds initially sets up subsidiaries in each country, which then monitors the franchisees service delivery alleviate such concerns.

The effectiveness of this strategy is the learning effect where McDonalds benefits from the franchisees valuable innovative ideas. For example, restaurants in France were faced with slow

growth such the local franchisees experimented with the menu, layout and theme of McDonalds restaurants. As a result, annual sales increased from 1% to 3.4% of the same-store. Thus,

McDonalds executive considered adopting similar changes in markets where same-store sales growth were sluggish including US. Returns are likely to be greater if a local competitor lacks

comparable products (Hill, 2009). McDonalds revenues rose to $5.61 billion, an increase of 10% from Q1 FY2009 ahead of analyst expectations of $5.53 billion. Thus, the companys core competencies could not be easily matched or imitated by competitors in managing fast-food

operations across borders. Furthermore, McDonalds have attained higher profit margin and greater profitability had it remained in the United States, according to the Q2 FY2010 Earning

summary global comparable sales increased 4.8%, with Europe leading at 5.2%, Asia/Pacific,

Middle East and Africa at 4.6% and finally U.S at 3.7%. The company owns more stores

worldwide (about 19,700) than it does in its home country, thus indication of confidence of

internalization.

The ineffective of this strategy is that it increases complexity; geographic separation, cultural and

national differences and variations in business practices tend to make control and communication

between HQ affiliate very difficult. Others argue that the decision to centralize or decentralize

the corporation directly affects marketing efforts. As McDonalds had learnt that a wide variety of environmental interest existed around the world, the inefficiency of centralizing many of its

strategic decision at HQ level had implication hence, it had to decentralize the decision process

to allow greater customization of each market among franchisees and corporate-owned

restaurants. For example, in Japan which has a high density population, waste and recycling are

significant concerns and in Australia, water conservation is a major issue.

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Conclusion

India gained highly from the LPG model as its GDP increased to 9.7% in 2007-2008. In respect

of market capitalization, India ranks fourth in the world. But even after globalization, condition

of agriculture has not improved. The share of agriculture in the GDP is only 17%. But seeing the

positive effects of globalization, it can be said that very soon India will overcome these hurdles

too and march strongly on its path of development. The lesson of recent experience is that a

country must carefully choose a combination of policies that best enables it to take the

opportunity - while avoiding the pitfalls. For over a century the United States has been the

largest economy in the world but major developments have taken place in the world Economy

since then, leading to the shift of focus from the US and the rich countries of Europe to the two

Asian giants- India and China. Economics experts and various studies conducted across the globe

envisage India and China to rule the world in the 21st century. India, which is now the fourth

largest economy in terms of purchasing power parity, may overtake Japan and become third

major economic power within 10 years. To conclude we can say that the modernization that we

see around us in our daily life is a contribution of Globalization. Globalization has both positive

and as well as negative impacts on various sectors of Indian Economy. So Globalization has

taken us a long way from 1991 which has resultant in the advancement of the country.

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