MCDONALD’S CORPORATION IN EMERGING

MARKETS
Under the guidance of:
Dr. Tamal Datta Choudhari

Case Summary:
The case focuses on the US- based fast food chain McDonald's entry and expansion strategies in the
Chinese market and Russian market. McDonald's entered China and Russia in 1990. Since then
McDonald's in China and Russia have been expanding steadily by providing outstanding quality,
service, and value to its customers. It entered into Russia at a time when the country was still
struggling to gain political and economic stability after reforms had been introduced. McDonald's
strategic plan in both countries was to focus on core menu extensions, convenience and value. The
case details the operational strategies of McDonald's in China and Russia. The case also discusses
the different challenges faced by McDonald's in both Countries. Such as- problems of obtaining
building materials to build the restaurant as sand or gravel, short supply of sufficient sugar and
flour and another problem was some supplies were not simply produced or consumed in the Soviet
Union like iceberg lettuce, pickling cucumbers, the Russet Burbank potatoes etc. in Russia. And on
the other lacking of quality supplies and distribution difficulties are problems in China. In January
1990, it was almost impossible to accommodate the crowd, when the restaurant’s door opened for
the first time in Moscow though it was the largest McDonald’s in the world. At the first day, an
estimated 30000 customers were served though the price of McDonald’s products was so high, the
crowds continued. China’s government wanted establish its fast food market and felt that western
companies like McDonald’s could take the risks in proving its success. In 1990, the entry of
McDonald’s into china resembled its experience in Russia. In china McDonald’s moved more
smoothly which was not possible in Russia. Macdonald’s opened 96 restaurants in China, totaling
430 restaurants altogether in the first six month of 2001. McDonald’s success in China has
continued into the twenty first century. McDonald's did a tremendous success in Russia as well as
China.

Why McDonalds’ went global?

McDonalds’ Product Life Cycle

McDonalds’ started its operation in US and with time the product life cycle reached at a stagnant
stage i.e. at the saturation level (maturity stage), McDonalds’ started expanding its operations in
different countries like Japan, Russia, China, etc.

McDonalds’ not only focused in global expansion but also in the national development of the
product category through successive innovations like drive-through, product varieties, etc.
McDonalds’ entered China because of:

 Less Competition
 Domestic consumption is huge
 Political conditions being stable
 Support from Government

McDonalds’ entered Russia because of:

 The rapid expansion of shopping malls creates new real estate for fast food.
 Russia’s broad-based, young, not-so-picky crowd.

PORTER’S DIAMOND OF McDONALDS’ IN CHINA AND RUSSIA:

CHINA:

1. Factor Conditions:

a) Entered China through a Joint Venture with Beijing General Corporation of the Agriculture
Industry and Commerce United Company which helped them to procure the raw materials
easily even at the time of crisis.
b) McDonalds’ was also opened in Shenzhen as it comes under the Special Economic Zone,
hence, there were more govt. support, low tax rates, adequate infrastructure was available,
less interference from Government and convenience.
c) It started following location Strategy which takes care of the behavior and food habits of the
local people.

2. Demand Conditions:
a) Fastest growing economy
b) Demand increased with the influence from and popularity from the western culture.
c) In China, customers have high purchasing power capacity which helped the demand to
increase with time and popularity.
d) McDonalds’ were facing problem in the distribution due to the huge demand. To minimize
the problem, McDonalds’ started drive through by which customers can purchase without
getting down from their car.

Related and Supporting Industries:

a) Rely on independent suppliers for raw materials outsourcing.
b) Rely on Govt.-Dept. of Agriculture i.e. Beijing General Corporation of the Agriculture
Industry and Commerce United Company.

Firm Strategy, Structure and Rivalry:

a) In China, they focused completely on the Chinese culture. The menu was according to the
Chinese taste and preferences.
b) Marketing Strategies like:
 Segment-wise food
 Using prefix Mc in menu, so that people could relate it with McDonalds’.
 d) Local Chinese fast food centers were the competitors but there was a huge gap in the quality
of the food.

RUSSIA:

Factor Conditions:

a) There was a cold war going on between US and the Soviet Union because of which
McDonalds’ were not allowed to enter. It took 14 intense years of negotiations for
McDonald's to get entry into the Soviet Union.
b) In April 1988, McDonalds’ could finally convince Moscow city officials that they could work
in their culture. As part of the agreement, which quickly became known as "Hamburger
Diplomacy," McDonald's built a new state-of-the-art food production and distribution
center called "McComplex" to supply our restaurants in Russia with the same consistent,
high-quality food products served at McDonald's worldwide.
c) There were no local suppliers for the raw-materials.
d) With the help of its joint venture partner—the Moscow city administration—the company
identified Russian farmers and bakers as additional partners. It imported cattle from
Holland and russet potatoes from the United States, brought in agricultural specialists from
Canada and Europe to improve the farmers’ management practices, and advanced the
capital streams to farmers so that they could invest in better seeds and equipment.
e) The company also brought in some fifty expatriate managers to teach Russian employees
about its service standards, quality measurements, and operating procedures, and it sent a
team of twenty-three Russian managers to Canada for a four month training program.
f) Mc-Donald’s created a vertically integrated operation in Russia.
g) High technology system was followed.

Demand Conditions:

a) 30000 customers in the 1st day

b) McDonald’s sees the decline in fast-food dining. Hence, it devoted 20% of its marketing
budget to persuade the Russian consumers to have breakfast in its restaurants and the
strategy worked.
Related and Supporting Industries:
a) Being their own boss
All franchisee agrees to operate the restaurant in accordance with McDonald's standards of
quality, service, cleanliness and value.
b) Continuous support
Success and profitability of McDonald's is inextricably linked to the success of all the franchises.

Firm strategy, structure and rivalry:

a) Selling a well established, high quality product
 Product standardization.
 No expensive market research

b) Intensive initial training

 Training for 9 months
 Leadership qualities, business management, team building.
 Stock control and ordering, profit and loss accounts and the legal side of hiring and
employing staff

By:

Garima Shroff
(09011)
Calcutta Business School