Case II Marketing “McDonald's: is China L ovin it” 1. What are t he general environ mental for ces that c ould influ ence or ha ve influe nced McDo nald's development in China? a. Demogr aph ic En vir onment • There was massive urbanization in China, captured in graphic bellow: (Opportunities) Urban Population Percentage 30% 32% 34% 36% 38% 40% 2000 2001 2002 2003 2004 2005 2006 YearP o p u l a t i o n p e r c e n t a g e Rural population (in percentage) Urban population (in percentage) • In China there was significant economic growth, wh ich reflected from per capita annual income growth. (opportunities) 0 200 400 600 800 1000 1200 1400 1600 P e r C a p i t a A n n u a l I n c o m e ( i n U S $ ) 1980 1985 1990 1995 2000 2005 YearPer Capita Annual Income of Urban and Rural Households in China (Year 1980-2005) Per Capita Annual Disposable Income ofUrban Households (in US$) Per Capita Annual Net Income of Rural Households (in US$) • Affluence people in China was increasing (opportunities) • In China’s there was r apidly growing middle class (opportuniti es) • In China there are many lower income consumers that could not afford at Western fast food chains, which charge $3 for a basic meal. (threat) b. Socio cultu ral Envi ron me nt • Chinese customers are eager to try out burgers and fries, which were vastly different from local Chinese quick service restaurants. (Opportunities) • Big curiosity of Chinese about foreign brands and their-in-store experience that enable Western fast food and restaurant companies to set relatively high price for their food (Opportunities) • Chinese food tradition. Chinese meal, dishes were served on communal plates, which were placed at the center of a table for everyone to share. That different from what McDonald’s offers as western food, which serve on individual serving. (threat) • China’s rapidly growing middle class was also demanding h igher standards. (Opportunities) • Fast food is already known in China, such as noodle and dumpling stalls. (Opportunities) By: G122 Ray Tiran, Siska Amonalisa, Rachmat Adi Sampurno, Vivi Agustin, Fransiskus Sitepu
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7/28/2019 Case Discussion Mc Donalds: Is China Lovin It
1. What are the general environmental forces that could influence or have influenced McDonald's
development in China?
a. Demographic Environment
• There was massive urbanization in China, captured in graphic bellow: (Opportunities)
Urban Population Percentage
30%
32%
34%
36%
38%
40%
2000 2001 2002 2003 2004 2005 2006
Year
P o p u l a t i o n
p e r c e n t a g e
Rural population (in percentage)
Urban population (in percentage)
• In China there was significant economic growth, which reflected from per capita annual income
growth. (opportunities)
0
200400600800
1000120014001600
P e r C a p i t a A n n u a l
I n c o m e ( i n U S $ )
1980 1985 1990 1995 2000 2005
Year
Per Capita Annual Income of Urban and Rural Households in
China (Year 1980-2005)
Per Capita AnnualDisposable Income of Urban Households (inUS$)
Per Capita Annual NetIncome of RuralHouseholds (in US$)
• Affluence people in China was increasing (opportunities)
• In China’s there was rapidly growing middle class (opportunities)
• In China there are many lower income consumers that could not afford at Western fast food chains,
which charge $3 for a basic meal. (threat)b. Sociocultural Environment
• Chinese customers are eager to try out burgers and fries, which were vastly different from local
Chinese quick service restaurants. (Opportunities)
•
Big curiosity of Chinese about foreign brands and their-in-store experience that enable Western fastfood and restaurant companies to set relatively high price for their food (Opportunities)
• Chinese food tradition. Chinese meal, dishes were served on communal plates, which were placed at
the center of a table for everyone to share. That different from what McDonald’s offers as westernfood, which serve on individual serving. (threat)
• China’s rapidly growing middle class was also demanding higher standards. (Opportunities)
• Fast food is already known in China, such as noodle and dumpling stalls. (Opportunities)
By: G122 Ray Tiran, Siska Amonalisa, Rachmat Adi Sampurno, Vivi Agustin, Fransiskus Sitepu
7/28/2019 Case Discussion Mc Donalds: Is China Lovin It
• In the late 1980’s and early 1990’s the emerge of Western fast-food chains had change restaurant
landscape in China through the different experience they offered to Chinese consumers: efficientself-service (threat),
• Standardized servings, less reliance on eating utensils, a clean environment and a comfortable
atmosphere. (Opportunities)
• Young Chinese customers had a different view about Western restaurant: they don’t mind paying
more expensive food to enjoy and socialize with friend and relax. (Opportunities)
• Breakfast market in China: 80% of Chinese consumers are eating breakfast, among which 68% ate
breakfast away from home. (Opportunities)
• Chinese consumers have a preference tea then coffee. (Threat)
• Social critic about health improvement and environmental standard in China: Mc Donald’s doesn’t
do the same campaign about health and environment as they do in US. (threat)
• McDonald’s in developing nations had been targeted by anti Americans Activist. (threat)
• American News Anchor Brian Sulivan said that McDonald should respect US since McDonald was
American Company as a impact of tag “I’m Lovin it when China win” (threat)
• While the booming economy of China offered the environmental conditions corresponding to fast-food culture, the environment also posed challenges to McDonald’s. The prevalence of Mc’Donalds
restaurants in China seemed suggests the Chinese were lovin’ it. (opportunity)
• In 1987-1990, the KFC, McDonald, Pizza Hut have a service that comparable to high class Chinese
Restaurant. Many Chinese in those early considered dining at KFC, McDonald’s or Pizza Hut as
Luxury. (opportunities)
• There were cases in china of other franchises signing on as partners just to learn trade secrets and
recipes and then open their own stores under different names. (threat)
• Malan Noodles emphasizing the nutritional values of its noodles and ingredients that it used, it also
promotes wide selection of Chinese dishes to customers, unlike western fast food, which lack
variety. (threat)
• McDonald’s rival, KFC, was the first foreign company to bring the concept of fast food to the
country in 1987 (threat)
c. Economic Environment
• The competitive environment was also intensifying as local a foreign restaurant sought to capitalize
on China’s increasing affluence people. (threat)
• There were powerful Chinese partners who willing to have a joint venture relationship with McDonald as a foreign company. (opportunities)
• In April 2007 there was raising inflation in China. (threat)
• Companies that originated in Asia and which were familiar with both Chinese tastes and Western
management styles also emerged in China during the Economic Reform. (threat) new entries
By: G122 Ray Tiran, Siska Amonalisa, Rachmat Adi Sampurno, Vivi Agustin, Fransiskus Sitepu
7/28/2019 Case Discussion Mc Donalds: Is China Lovin It
• Many home grown fast-food chains, which offered more – Chinese and lower prices than foreign
counterpart. (threat) existing competitors
• Local Chinese chains mostly concentrated their business in urban cities in specific regions and
offered food delivery services (threat)
•
KFC’s first outlet in Beijing was in three-storey building of 1,100 square meters, making it theworld’s largest KFC by floor space. (Threat) existing competitor
d. Regulatory Environment
• McDonald’s was entered China in 1990, where China not yet have Franchise Law. In 1997 China
enacted its Franchise Regulations which applied only to domestic franchiser; just in 2004 China hascreated legal structure for foreign franchiser as part of China commitments to WTO. (opportunities)
• Newspaper revealed McDonald and Yum Brands had underpaid their part time employees in
Guangzhou. (threat)
• As a foreign fast food companies sprang up quickly during the 1990s, the Chinese government
expected the fast-food sector to grow rapidly in the country and contributed significantly to
restaurant industry. (opportunities)
e. Technological Environment
• Many of China Chains failed because they failed to develop system like those of foreign chains
(threat)
• Lihua fast food operated without storefronts but owned a well-equipped kitchen with a skilful
kitchen crew (threat)
• Lihua used computers to facilitate inefficient food ordering and tracking system and utilized the GPS
to aid food delivery. (threat)
• Lihua fast food was the 1st fast food company in China to use environmentally friendly packaging
and implement the ISO 4001 environmental management system (threat)
f. Natural Environment
• China have natural resources that can fulfill 95% of material needs by Mc Donald’s (egg. beef ,
potatoes, milk, and vegetable) (opportunities)
2. What are the opportunities and threats presented to McDonald's operations in China?
• Opportunities presented to McDonald’s operation in China
Marketing opportunities is an area of buyer need and interest that a company has a high probability of profitability satisfying based on Marketing Management by Kotler, Keller 14ed.
Massive urbanization in China
Affluence people in China was increasing & there was rapidly growing middle class
Chinese customers are eager to try out burgers and fries
Big curiosity of Chinese about foreign brands and their-in-store experience
Fast food is already known in China, such as noodle and dumpling stalls
By: G122 Ray Tiran, Siska Amonalisa, Rachmat Adi Sampurno, Vivi Agustin, Fransiskus Sitepu
7/28/2019 Case Discussion Mc Donalds: Is China Lovin It
As a foreign fast food companies sprang up quickly during the 1990s, the Chinese governmentexpected the fast-food sector to grow rapidly in the country and contributed significantly torestaurant industry.
Many of China Chains failed because they failed to develop system like those of foreign chains
China have natural resources that can fulfill 95% of material needs by Mc Donald’s (e.g. beef , potatoes, milk, and vegetable)
• Threats presented to McDonald’s operation in China
Environmental threat is a challenge posed by unfavorable trend or development that, in the absence of
defensive marketing action, would lead to lower sales and profit.
3. What are the strategic groups in the fast-food industry in China? In which strategic group does
McDonald's China compete most?
Based on Michael Porter theories, Strategic group is firms directing the same strategy directed to the sametarget market.
• Different restaurant landscape
Efficient self-service
Standardized serving
Less reliance on eating utensil
A clean environment
Comfortable atmosphere
Focus on brand quality
Focus on management control
Ability to adapt quickly to local condition
Has well-known and strong name and
trademark
Vast Capital
By: G122 Ray Tiran, Siska Amonalisa, Rachmat Adi Sampurno, Vivi Agustin, Fransiskus Sitepu
Rivalry amongexisting
competitors
Threat of newenterence
Bargaining power of buyers
Bargaining power of Suppliers
State owned GeneralCorporation of Beijing
Agriculture, LocalFarmer
Threat of substituteproduct
H i g h
L o wH i g h
H i g h
Already have a join venture withState owned General Corporation of Beijing AgricultureDevelop a network with farmer, foodprocessing manufacture and other suppliers
L o wH i g h
L o wH i g h
Good substituteperformanceLow cost of change
Free market
Small size order There were difference offeringfrom its competitor High price sensitivityLow cost of changing
Moderate time and costentryModerate economic of scaleMany new local entrancefailed to develop systemLow barriers to entry
A lot of number competitor Uniqueness product of each competitorsLow customer loyaltyNo switching cost
A lot of number competitor Uniqueness product of each competitorsLow customer loyaltyNo switching cost
Threat of newenterence A lot of number competitor
Uniqueness product of each competitorsLow customer loyaltyNo switching cost
A lot of number competitor Uniqueness product of each competitorsLow customer loyaltyNo switching cost
Moderate time and costentryModerate economic of scaleMany new local entrancefailed to develop systemLow barriers to entry
A lot of number competitor Uniqueness product of each competitorsLow customer loyaltyNo switching cost
Rivalry amongexisting
competitors
Moderate time and costentryModerate economic of scaleMany new local entrancefailed to develop systemLow barriers to entry
Bargaining power of Suppliers
State owned GeneralCorporation of Beijing
Agriculture, LocalFarmer
Moderate time and costentryModerate economic of scaleMany new local entrancefailed to develop systemLow barriers to entry
M o d e r a t
e
L o w H i g h
7/28/2019 Case Discussion Mc Donalds: Is China Lovin It