Strategic

Management
ASSIGNMENT ON

External Environmental
Factors, Scanning and
Appraisal
A case study for
McDonalds
Assignment Submitted By:

Abhishek Maurya
Roll No. 10001116001

Santosh Kumar
Roll No. 10001116043

Kapil Dev Tiwari

Roll No. 10001116020

MBA HR & IR 3rd Semester
IMS Lucknow University

Submitted To:
Mrs. Swati Raman

Organizational Environment An Introduction

Organizational environment consists of both external and internal factors.
Environment must be scanned so as to determine development and
forecasts of factors that will influence organizational success.
Environmental scanning refers to possession and utilization of
information about occasions, patterns, trends, and relationships
within an organizations internal and external environment. It helps
the managers to decide the future path of the organization. Scanning must
identify the threats and opportunities existing in the environment. While
strategy formulation, an organization must take advantage of the
opportunities and minimize the threats. A threat for one organization may be
an opportunity for another.
Internal analysis of the environment is the first step of environment
scanning. Organizations should observe the internal organizational
environment. This includes employee interaction with other employees,
employee interaction with management, manager interaction with other
managers, and management interaction with shareholders, access to natural
resources, brand awareness, organizational structure, main staff, operational
potential, etc.
Also, discussions, interviews, and surveys can be used to assess the internal
environment. Analysis of internal environment helps in identifying strengths
and weaknesses of an organization.
As business becomes more competitive, and there are rapid changes in the
external environment, information from external environment adds crucial
elements to the effectiveness of long-term plans. As environment is dynamic,
it becomes essential to identify competitors moves and actions.
Organizations have also to update the core competencies and internal
environment as per external environment. Environmental factors are infinite,
hence, organization should be agile and vigile to accept and adjust to the
environmental changes. For instance - Monitoring might indicate that an
original forecast of the prices of the raw materials that are involved in the
product are no more credible, which could imply the requirement for more

focused scanning, forecasting and analysis to create a more trustworthy

prediction about the input costs. In a similar manner, there can be changes
in factors such as competitors activities, technology, market tastes and
preferences.
While in external analysis, three correlated environment should be studied
and analyzed

immediate / industry environment

national environment

broader socio-economic environment / macro-environment

Examining the industry environment needs an appraisal of the

competitive structure of the organizations industry, including the
competitive position of a particular organization and its main rivals. Also, an
assessment of the nature, stage, dynamics and history of the industry is
essential. It also implies evaluating the effect of globalization on competition
within the industry. Analyzing the national environment needs an
appraisal of whether the national framework helps in achieving competitive
advantage in the globalized environment. Analysis of macro-environment
includes exploring macro-economic, social, government, legal, technological
and international factors that may influence the environment. The analysis of
organizations external environment reveals opportunities and threats for an
organization.
Strategic managers must not only recognize the present state of the
environment and their industry but also be able to predict its future
positions.
The external environment in a company or an organization includes all the
external elements and changes which can have a direct or indirect, positive
or negative incidence, on the company or the organization. These changes
concern the customers, the suppliers, the competitors, the markets, the
economy, the politics, the new technologies, the demographic profiles.

A case study for McDonalds

1. Introduction
McDonald's Corporation is the world's largest chain of hamburger
fast food restaurants, serving around 64 million customers daily in 119
countries. Headquartered in the United States, the company began in 1940
as a barbecue restaurant operated by the eponymous Richard and Maurice

McDonald; in 1948 they reorganized their business as a hamburger stand

using production line principles. Businessman Ray Kroc joined the company
as a franchise agent in 1955. He subsequently purchased the chain from the
McDonald brothers and oversaw its worldwide growth.
A McDonald's restaurant is operated by a franchisee, an affiliate, or the
corporation itself. The corporation's revenues come from the rent, royalties
and fees paid by the franchisees, as well as sales in company-operated
restaurants. McDonald's revenues grew 27 percent over the three years
ending in 2007 to $22.8 billion, and 9 percent growth in operating income to
$3.9 billion.[6]
McDonald's primarily sells hamburgers, cheeseburgers, chicken, french
fries, breakfast items, soft drinks, shakes and desserts. In response to
changing consumer tastes, the company has expanded its menu to include
salads, wraps, smoothies and fruit.
1.1 McDonald s operations in international markets
McDonalds is the leading global foodservice retailer with more than
30,000 local restaurants serving 52 million people in more than 100
countries each day. It is one of the worlds most well-known and valuable
brands and holds a leading share in the globally branded quick service
restaurant segment of the informal eating-out market in virtually every
country in which it operates.
1.2 Situation analysis and marketing planning. A theoretical outlook
The importance of the internal and external environment and their
effect on the development and implementation of marketing planning is
crucial and should be highly considered by any organisation wishing to be
profitable in the increasingly competitive international marketing arena.
Multinational companies that desire to prosper, should develop a coherent
international marketing plan having, as a starting point, the analysis of the
environment. Based on that, the company objectives, strategies and tactics
are drawn, aiming for organisational success and profitability.
Multinational companies should have in mind that effective marketing
strategies could not be developed without firstly analysing the external and
internal environment in which the company operates.
The external environment for a company covers many aspects. It is
suggested that the environment covers two main areas:
_ the macro-environment
_ the micro-environment.
The macro-environment consists of forces such social, cultural, legal,
economic, political and technological. Within this are included factors such as

demographics, green issues and larger societal and environmental forces.

The micro-environment includes other environmental constraints, such as
the structure of the market, the suppliers, customers, trends of the market,
the public and competition.
Equally important is the internal environment incorporating the examination
of the companys marketing mix (product, price, place, promotion) and
service mix (people, process management, physical evidence). An analysis of
the internal environment also covers other factors such as sales, profitability,
market share and customer loyalty.
The internal audit examines the companys own resources and supplies
suggestions as to the companys strengths and weaknesses. Internal
considerations are mainly controllable by the company and, therefore,
companies should mostly avoid any problems from this area. It is evidently
proven that product development and strategic formation is based upon the
internal organizational capabilities.
Every company, after considering both its internal strengths and
weaknesses and the external environmental influences that affect it
(opportunities and threats) is in a position to develop an effective marketing
plan. Failure to understand the external and internal capabilities may lead to
sub-optimisation of the organisations strategy and resources invested.
Multinational companies must highly consider environmental auditing
and the development of the SWOT (strengths, weaknesses, opportunities and
threats) analysis. This is vital if they want to capitalise on organisational
strengths, minimise any weaknesses, exploit market opportunities as they
arise and avoid, as far as possible, any threats.
It should be noted that the external environment is very important as it
dictates the behaviour of any marketing orientated organisation.
Consequently, for the purpose of this case, considerations for the analysis of
the external environment are highlighted for McDonalds.
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2. McDonalds and its external environment

2.1 Political/legal factors
Political factors include laws, agencies and groups that influence and
limit organizations and individuals in a given society. The dimensions being
evaluated include the government attitude to foreign markets, the stability
and financial policies of a country and government bureaucracy.
Political and legal forces are highly important as they cover many
aspects of company policy. overnment policy affects industry as a whole
through regulatory bodies such as the Department of the Environment and
the Department of Trade and Industry. These bodies develop policies on the
trading, restrictions and standards within their particular field. The policies
created can affect businesses in various ways; in how their products are
produced, promoted and sold.

Multinational companies should understand that the political

background is different across the regions of the world. Many former
centrally planned economies, for example, are still heavily protected by the
government. In such a climate, it is more likely that proposals for a joint
venture will be accepted.
It is argued that the legal ramifications of marketing a product internationally
are very complicated. Each country has their own legal system and when a
company internationalises then it must keep within these legal systems.
A legal issue occurred in Russia for McDonalds when, in 1993, a law
was passed in Moscow requiring all stores to have Russian names, or at least
names translated into the Cyrillic alphabet. This meant the company had to
translate its brand name to . This enabled McDonalds to at least retain the
sound of its name. This also occurred in Japan where the pronunciation of its
name was changed to MaKudonaldo(Daniels et al., 1998).
Moreover, the law in Russia states that at least a three-quarters
majority vote is needed to approve important decisions. Therefore, the
representatives of McDonalds and the City Council must agree on all major
decisions, which could hamper opportunities identified by the company
(Daniels et al., 1998).
When it comes to developing marketing mix elements in foreign
markets, the companys approach may have to be adapted. The legal
environment must be assessed to determine whether it would affect the
launch of a product into a new country. In many countries, government and
regulations have a direct influence on product design. Law often imposes
minimum or special product standards, which may necessitate the shape,
kind, components or even the brand name of a product used.
Government regulations and restrictions regulate the content of
promotion. The law restricts the advertisers freedom, particularly with
regard to the advertising message and visual presentation. Promotional
activities also may have to be changed, depending on the country involved
and the legal systems that take place. For example, in France and China,
door-to-door selling cannot be used as it is prohibited (Vrontis and Vronti,
2004).
Moreover, Germany forbids superlatives or comparative claims. The
words better and best are words to be avoided. In the case of product
comparisons, the manufacturer with whose products the advertised products
are compared may be able to sue for damages.
Price regulations may be another factor that a company needs to look
at when launching into internationalisation. In some countries governments
may control the price that is set for products. For example, Ghana controls
the manufacturers profit margins, which indirectly controls the price paid by
customers (Muhlbacher et al., 1999).
2.2 Economic factors
Economic factors include factors that affect consumer purchasing
power and spending patterns. Economic trends are again, to a large extent,

bound up in government policy and are a crucial issue to businesses and

marketers because of the way they affect consumer spending power. In
periods of relative prosperity, a consumers disposable income will be
relatively high and, therefore, there is a willingness to spend more money.
Price becomes a less sensitive issue and this affects marketing strategy
itself. During a recession, however, spending power decreases making price
more relevant.
The differences that exist between countries in different stages of
economic and industrial development have a profound influence on price
setting. Differences in income levels may suggest the desirability of
systematic price variations. It is, therefore, important for McDonalds to
understand that, in countries with a lower stage of economic development, it
is necessary to set a lower price.
The limited purchasing power in developing countries, often combined
with low levels of literacy, poses special problems for marketers on
promotion. Although theoretically a company has a wide choice of
promotional tools, in practice the choice of effective tools is somewhat
limited. For example, in foreign markets with low economic development,
McDonalds should try to use cost effective methods of promotion, otherwise
the final price would be beyond the reach of most customers.
2.3 Technological factors
Technological developments have made international travel and
communication more accessible to consumers and led to a situation in which
social habits and fashions change much quicker. Moreover, lifestyles and
attitude changes cause changes in product demand and how products can
be sold to customers.
Technological factors include forces that create new technologies,
creating new product and market opportunities. It is based on considerations
as to whether the local market has sufficiently developed technologies to
take full advantage of the product. It should be noted that high technologies
are required to make full use of the variety of promotional methods using
alternative advertising media such as television or websites (Vrontis and
Vronti, 2004).
McDonalds successful internationalisation can be partly attributed to
the way the company has overcome technological problems. The systematic
substitution of equipment for people and the carefully planned use and
positioning of technology have helped each franchise to be of the same high
standard. When McDonalds entered the Russian market, the company took
into account that technology transfer could provide important long-term
benefits to the Soviet citizenry. Also, since the Soviet machinery lagged 15
20 years behind Western technology, new machinery from Holland was used
to harvest potatoes used to make French fries.
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2.4 Socio-cultural factors

Shifts in spending power are also affected by sociological demographic
trends. Analysis of population fluctuation suggests to marketers in which age
groups there is going to be the largest demand for articular goods. A baby
boom, for example, will increase the need for baby products initially then, in
following years, a greater demand for toys, educational products and
childrens clothes etc. Another emerging trend is the changing family, with
the traditional family unit of mother, father and two children in decline. The
increase in one person households creates different needs in home products
as homes require smaller products and money is spent due to more frequent
home movement. Changes in demographics can, therefore, affect things
such as the development, designing, packaging and promotion of products. It
could also shape the organisational setting of strategies and strategic
planning.
In the case of McDonalds, several social forces greatly affected its
success in US. One factor was the prevailing family structure in the US and
the trend towards a youth-orientated culture. In the 1960s and the 1970s the
decision-making role had changed to such an extent that children often
made the selection of a place to eat. McDonalds special emphasis on
children and teenagers as advertising targets was successful largely because
the strategy capitalised on these existing social trends.
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2.5 Environmental factors

The climate and physical terrain of a country are important
environmental conditions which have a significant effect on the demand and
the type of product made available. Prior to entry into a new market, it is
very important for McDonalds to consider the physical terrain and climate in
the appraisal. Altitude, relative temperatures and humidity are some of the
climatic conditions that can affect products in foreign markets.
Being environmentally friendly is another important issue to consider.
Environmental groups forced McDonalds to reduce its use of plastic and
styrofoam packing. While McDonalds internal market research shows that
environmental issues will have neither a positive nor negative impact on
sales, they have agreed to work with the Environmental Defence Fund, an
environmental pressure group, to reduce unnecessary and harmful waste.
2.6 Stakeholders
It is important that multinational companies highly consider and value
their general public or stakeholders their staff, suppliers, distributors,
shareholders and the consumer itself. How a consumer and, indeed, the
other publics mentioned, view the company and the products marketed is
important, firstly in order to assess what market you are in but, secondly, to
assess whether the corporate image of the company is functioning in a
positive manner. Public perception of your product allows it to be positioned
or repositioned to reach the required target market and, therefore, be

successful. If you view your product as portraying a certain image that is at

odds with the public perception of it, obviously your marketing strategy is
not functioning properly. Likewise, if your business itself is viewed in a
negative light by actors both internal and external to the company, steps
need to be taken including the design, quality, marketing and strategy of
what is offered to correct this and therefore create a feel good factor. Having
a good relationship with all publics is highly considered by McDonalds.
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2.7 Customer tastes

Customer tastes is another very important issue to consider. Every
company should undertake market research and understand consumers
needs and wants. Based on that, it should design marketing strategies and
tactics to meet the needs and requirements of its target audience. This is
crucial as, by undertaking necessary adaptations, the company can maintain
its marketing orientation and go in line with the marketing concept.
McDonalds is not an advocate of global marketing where this involves
products and services being treated as though the world is a single, uniform
entity, thus marketing standardised offerings in the same way everywhere.
They follow an internationalization marketing strategy which involves
customising marketing strategies (this may also include pricing strategies)
for different regions of the world according to cultural, regional and national
differences in line with local needs. Therefore, the concept of think global,
act local has been clearly adopted by McDonalds (Vignali, 2001). Below are
some key examples of the Internationalisation marketing strategy pursued
by McDonalds.
2.8 Product
One of the aims of McDonalds is to create, where possible, a
standardised set of items that taste the same whether in Singapore, Spain or
South Africa. Vignali (2001) notes that adaptation is required for many
reasons, including consumer tastes/preferences and laws/customs. There are
many situations where McDonalds adapted the product because of religious
laws and customs in a country. For example, in Israel, after initial protests,
Big Macs are served without cheese in several outlets, thereby permitting
the separation of meat and dairy products required of kosher restaurants.
McDonalds restaurants in India serve Vegetable McNuggets and a muttonbased Maharaja Mac (Big Mac). Such innovations are necessary in a country
where Hindus do not eat beef, Muslims do not eat pork and Jains (among
others) do not eat meat of any type. In Malaysia and Singapore, McDonalds
underwent rigorous inspections by Muslim clerics to ensure ritual cleanliness;
the chain was rewarded with a halal (clean, acceptable) certificate,
indicating the total absence of pork products. There are also many examples
of how McDonalds adapted the original menu to meet customer
needs/wants in different countries.
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2.9 Structure of the market/competition

The issue of the competitive environment must be seen as probably

one of the most important issues. By gathering continuous data about
competitors, such as their strategic strengths and weaknesses, their
objectives, strategy, tactics and reaction patterns and the sort of marketing
activity/budget, a company can decide its own position in relative terms and
be prepared for what challenges are facing them in terms of competitor
attacks. This information also can be used to interpret sudden moves by
competitors and how they will respond to a move you are considering taking.
Porter (1980) and Doyle (1983) are both proponents of positioning
strategy. Porter considers the external factors which impact upon a firms
competitive positioning. Doyle refers to the choice of target market segment
which describes the customers. A business will seek to serve and the choice
of differential advantage which defines how it will compete with rivals in the
segment.
92011 Porter claims that competition is at the core of success or failure of
the firm and that a successful competitive strategy can establish a profitable
and sustainable industry position. He claims that there are two fundamental
questions underlying the choice of a competitive strategy: firstly, how
attractive is the industry with regard to profitability and secondly, what are
the determinants of a competitive position within an industry.
According to Porter there are five competitive forces that will govern the
rules of competition and these rules will prevail in any industry both in
domestic and international markets. The five forces are:
- the entry of new competition to the market
- the threat of substitutes or replacement products
- the bargaining power of buyers
- the bargaining power of suppliers
- the rivalry between firms of the same sector.
2.9.1 Threat of rivalry/competitors

The concentration of firms within the fast food industry is low due to
the established presence of McDonalds, Burger King and KFC. However, in
certain markets, McDonalds will face competition from established domestic
fast-food outlets.
2.9.2 Threat of new/potential entrants
The barriers to entry are quite high for new entrants, as the size of
McDonalds means they have achieved economies of scale and have
preferential access to raw materials and distribution channels. New entrants
may find that a high cost of investment is required in securing plant and
machinery.
2.9.3 Threat of substitutes

A substitute product is one that can be used as an alternative to a

companys own. It could be argued that the threat of substitutes to
McDonalds comes from pizzas and other domestic kebab and fast food
houses. However, most of the above do not have the same level of
convenience that McDonalds offers, in having a number of outlets in big
cities and also through the use of multiple drive-through outlets.
2.9.4 Bargaining power of buyers
This area is perceived to be fairly low risk for McDonalds as consumers
have little control over the variations in the product offerings, price and place
of distribution. However, international market research should take place and
any necessary adaptations made. The company should keep customers
satisfied, as switching cost is low and the possibility of switching to another
brand in case of dissatisfaction is relatively low.
2.9.5 Bargaining power of suppliers
This ranges from the threat of forward integration to the threat of
cutting off supplies. As McDonalds has a great deal of influence over their
suppliers, due to the fact that it aids them and trains them, the threats from
suppliers are low. Due to the scale of McDonalds operations, suppliers are
keen to retain their contracts with the firm. 1
2.10 Competitive positioning
So, what is a good strategy? Can a firm position itself in order to gain
competitive advantage over its competitors? Is there a specific position a
firm should take in order for its strategy to be successful? Rumelt (1980)
states that competitive advantages can normally be found in superior
resources, superior skills or a superior position. Resources and skills enable a
firm to do more or do it better than the competition. Different resources and
skills will be required depending on the industry or market segment.
Positional advantage is how the arrangement of these resources and skills
are used to out man oeuvre the competition.
Positional advantage can be gained by forward planning, greater skill
and resources or luck! Once a dominant position is gained it is difficult for
the competition to dislodge the incumbent firm provided the position merits
continuation and that it is extremely costly for competitors to take over.
As long as environmental forces remain constant position can remain
constant. Positional advantage can take the form of size or scale,
differentiation from competitors and successful trading names. To be
successful, a company needs to get both its strategy and tactics working in
harmony to provide the optimum return bounded by efficiency (McDonald
and Leppard, 1993). Both strategy and tactics should be designed after a
careful consideration of the situational environment.
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It is apparent from Figure 2 that businesses finding themselves to the
left of this matrix are destined to die, strategy being the key factor as to how
quickly. Considering McDonalds international performance we can argue that
the company is thriving as it is effective doing things right (having the

desired effect, producing the intended result) and efficient doing the right
thing (able to work well and without wasting time or resources).
4 Figure 2 Strategy tactics grid (for colours see online version)

5 The firm has to consider more than the industry structure, it also has to
take an appropriate position within the industry. This positioning will
determine the competitive advantage a firm can have, namely low cost or
differentiation against competitive scope at the broad or narrow market (see
Figure 3).
Figure 3 Porters generic strategy grid (for colours see online version)
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3 The official stance on McDonalds pricing policy is highlighted in the

companys mission statement, where it states the most fundamental
element of determining price: Being in touch with the pricing of our

competitors allows us to price our products correctly, balancing quality and

value.
Overall the ultimate goal of McDonalds pricing and differentiation mix is to
increase market share. The strategies of cost leadership and differentiation
are used interchangeably within the internationalisation approach of
McDonalds.
4
The McDonalds positioning in the cost leadership quadrant is achieved
not only through economies of scale in research, development and promotion
but also through learning, knowledge and experience in production and
operational processes as well as the way it manages its franchises. Vignali
(2001) provides an explanation of the pricing decisions of McDonalds. He
notes that this is based on a six step approach, namely:
1 selecting price objectives
2 determining demand
3 estimating costs
4 analysing competitors costs, prices and offers
5 selecting a pricing effort
6 selecting the final price.
The use of a differentiation strategy is where the firm attempts to
diversify from its competitors by adding something to its product that will
provide a unique value to its customers. There are also various ways a firm
can differentiate depending on the industry in which it operates, however the
costs of this differentiation policy must be lower than the additional pricing
the firm can obtain. Differentiation for McDonalds is achieved through a
perceived superior quality product which surpasses their nearest rivals and
high brand image and recognition. The company also has used their
promotion and packaging as a means of further differentiation, for example,
the golden arches, which have become an internationally recognised symbol
for high quality at low cost. They can, therefore, adopt a premium pricing
policy in many markets where economic conditions allow. There are several
approaches a firm can take to become a low cost producer, which can be
used in isolation or as a combination to differentiation. The most basic way
to a low cost is to remove all the extras from the product and produce a no
frills offering. The danger in this strategy is that the way is paved for a
feature war. The design or make up of the product can create advantages,
for example the use of alternative materials. The standardised production
and operational processes a firm employs can also reduce costs. Another
example would be the efficient use of distribution networks, manufacturing
systems or the use of low cost labour and product innovation.
The McDonalds company has perhaps, contrary to Porters warning,
managed to adopt both a differentiation and a cost leadership strategy.

McDonald and Leppard (1993) have developed a strategic focus matrix

(see Figure 4) which emphasises the impact of time on business activities.
The elements relating to the marketing mix have been emboldened to show
where they are positioned in relation to time. It is our view that McDonalds
adopts the following recommendations, not only in the short term but also in
the medium and long term.
6
78 Figure 4 Strategic focus matrix (for colours see online version)
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2.11 Strategic marketing planning

Strategic marketing planning makes use of a number of analytical models
that help to develop a strategic view of the business and, thus, can be used
as decision-making aids. The Boston Consulting Group (BCG) matrix (see
Figure 5) is one of these models.
Figure 5 The Boston Consulting Group matrix (for colours see online
version)
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Products or services and their respective strategies fall into one of four
quadrants of the BCG matrix. The typical starting point for a new business is
as a question mark. If the product is new it has no market share but the
predicted growth rate is good. What typically happens in an organisation is
that management is faced with a number of these types of products but with
too few resources to develop them all. Thus, the strategic decision-maker
must determine which of the products to attempt to develop into
commercially viable products and which ones to drop from consideration.
Question marks are cash users in the organisation. Early in their life, they
contribute no revenues and require expenditures for market research, test
marketing and advertising to build consumer awareness.
If the correct decision is made and the product selected achieves a
high market share, it becomes a BCG matrix star. Stars have high market
share in high-growth markets. Stars generate large cash flows for the
business but also require large infusions of money to sustain their growth.
Stars are often the targets of large expenditures for advertising and research
and development to improve the product and to enable it to establish a
dominant position in the industry.
Cash cows are business units that have high market share in a lowgrowth market. These are often products in the maturity stage of the product
life cycle. They are usually well-established products with wide consumer

acceptance, so sales revenues are usually high. The strategy for such
products is to invest little money into maintaining the product and divert the
large profits generated into products with more long-term earnings potential,
i.e. question marks and stars.
Dogs are businesses with low market share in low-growth markets. These are
often cash cows that have lost their market share or question marks the
company has elected not to develop. The recommended strategy for these
businesses is to dispose of them for whatever revenue they will generate and
reinvest the money in more attractive businesses (question marks or stars).
Having used the Boston Consulting Group matrix above, it should also
be noted that the BCG matrix suffers from limited variables on which to base
resource allocation decisions among the businesses making up the corporate
portfolio. Notice that the only two variables composing the matrix are
relative market share and rate of market growth.
Now consider how many other factors contribute to business success
or failure. Management talent, employee commitment, industry forces such
as buyer and supplier power, environmental sensitive practices, corporate
governance, corporate social responsibility and the introduction of
strategically-equivalent substitute products or services, changes in consumer
preferences and a host of others determine ultimate business viability.
The BCG matrix is best used, then, as a beginning point but certainly
not as the final determination for resource allocation decisions as it was
perhaps originally intended. In other words, just analysing the coordinates of
a product into the dogs category would not necessarily mean that it should
be singled out for termination. The technological, production and market
synergies (with reference to a perceived total offering) to customers should
also be parts of any elimination of dogs.
Further, if we consider McDonalds position as market leader within the
restaurant based fast food market (this is as opposed to frozen home made
fast food items) and the relative profits derived from this market, then it
becomes clear that they are positioned in the protect position quadrant of
the Mckinsey matrix (Figure 6). This means that the company should
concentrate efforts on maintaining its existing strength by investing to grow
at maximum digestible rate.
Figure 6 The McDonalds companys position in the Mckinsey matrix (for
colours see online version)

It is also recommended that they can capitalise on first mover advantage

and therefore drive market innovation. This reflects the concepts of the
inside-out or competencies based approach or the capabilities based
approach i.e. due to their relative size in the market, McDonalds can, to
some extent, drive the market.
2.12 Strategic options
Markides (1999) further states that behind every successful company
there is superior strategy. The company may have developed this strategy
through formal analysis, trial and error, intuition or even pure luck. No matter
how it was developed, it is the strategy that underpins the success of the
company.
Strategists have a tremendous amount of both latitude and
responsibility in developing and balancing the strategic options of an
organisation. The countless decisions required of these managers can be
overwhelming considering the potential consequences of incorrect decisions.
One way to deal with this complexity is through categorisation; one

categorisation scheme is to classify corporate-level strategy decisions into

three different types or grand strategies (Porter, 1985). These grand
strategies involve efforts to expand business operations (growth strategies),
decrease the scope of business operations (retrenchment strategies) or
maintain the status quo (stability strategies).
More specifically, growth strategies are designed to expand an organisations
performance, usually as measured by sales, profits, product mix, market
coverage, market share or other accounting and market-based variables.
Typical growth strategies involve one or more of the following:
with a concentration strategy the firm attempts to achieve greater market
penetration by becoming highly efficient at servicing its market with a
limited product line (e.g. McDonalds in fast foods)
by using a vertical integration strategy, the firm attempts to expand the
scope of its current operations by undertaking business activities formerly
performed by one of its suppliers (backward integration) or by undertaking
business activities performed by a business in its channel of distribution
(forward integration)
a diversification strategy entails moving into different markets or adding
different products to its mix. If the products or markets are related to existing
product or service offerings, the strategy is called concentric diversification.
If expansion is into products or services unrelated to the firms existing
business, the diversification is called conglomerate diversification.
When firms are satisfied with their current rate of growth and profits,
they may decide to use a stability strategy. This strategy is essentially a
continuation of existing strategies. Such strategies are typically found in
industries having relatively stable environments. The firm is often making a
comfortable income operating a business that they know and see no need to
make the psychological and financial investment that would be required to
undertake a growth strategy.
Finally, retrenchment strategies involve a reduction in the scope of a
corporations activities, which also generally necessitates a reduction in
number of employees, sale of assets associated with discontinued product or
service lines and, in the most extreme cases, liquidation of the firm.
Nonetheless, even considering which strategy to pursue and McDonalds is
indeed pursuing a growth strategy through its continuous franchising
international and domestic expansions is not enough in defining strategy
correctly. Mintzberg (1994, p.28)
discusses the concepts of strategy as a position and strategy as a
perspective. He notes that as position, strategy looks down . . . to the x
that marks the spot where the product meets the customer . . . and it looks
out . . . to the external marketplace. As perspective, in contrast, strategy

looks in . . . inside the organisation, indeed, inside the head of the collective
strategist . . . but it also looks up to the grand vision of the enterprise.
Mintzberg provides an illustration to demonstrate the concept. This has
been adapted and shown in Figure 7.

2.13 Utilisation of value chain

Viswanathan and Dickson (2006) provide a conceptual three-factor

model describing the right conditions for the standardisation of products and
services for a global organisation. Although it has been argued that
McDonalds uses a customised approach for setting up its local strategies in
the various countries in which it operates, the Viswanathan and Dickson
model (Figure 8) encompasses elements that, if considered by international
companies, could perhaps be used to enable them to capitalise on their
experiences elsewhere for successfully launching and managing their
expansion.
Figure 7 Position and perspective concept (for colours see online version)

Figure 8 Standardising global marketing strategy

The use of this model serves as an aid to managers for analysing the
conditions of the perspective host country with regard to being favorable for
the transferability of tried and tested practices. If all three conditions are not
favorable then management would at least be in a position to know where to
focus attention or where new strategies and tactics would need to be
customized to suit the new environment.

3. Conclusions

It is argued that effective marketing strategies and tactics cannot be

developed without firstly analyzing the environment in which the company
operates. A number of uncontrollable elements affect McDonalds
international marketing strategy and tactical implementation. These groups
of elements include the PESTLE (political, economic, social, technological,
legal and environmental), structure of the market and competition being
faced (Porters (1980) five forces analysis) as well as analysis of its
stakeholders,
customers
and
product
adaptation
within
its
internationalization strategy. All of these aspects are crucial to a companys
strategic decision making. The level of understanding that exists in these
relationships will determine the success of a company.
McDonalds is not making a one-time standardized global choice but it
is striking to find a balance. This is not a straightforward task, as identifying
the balance between standardization and adaptation is a challenge and very
difficult to achieve. The goals of reducing costs and complexity lead
McDonalds to consider standardization, while customer orientation sways it
towards adaptation. It is evident through the analysis that McDonalds is
adapting its marketing mix elements in order to go in line with the external
environment. At the same time, it should be noted that the company is also
standardizing when and where possible in its desire to achieve economies of
scale and global uniformity and image.With respect to McDonalds
internationalization strategy, the companys effectiveness and profitability is
obviously well supported by their strong competitive position and market
share in their primary product market. Its international success is achieved
by the companys strategy and tactics, which complement each other and
work in harmony, providing the optimum return bounded by efficiency. The
company is thriving as it is both effective (doing things right) and efficient
(doing the right thing).
McDonalds portfolio of products is well managed and ensures the best
fit between the companys strengths and weaknesses and for offsetting the
threats found in its competitive environment. In considering the strong
competitive position of the firm in a highly attractive market, it is suggested
that McDonalds should protect its position (Mckinsey matrix). This can be
achieved by concentrating efforts on maintaining its existing strength by
investing to grow at maximum digestible rate.
It is recommended that McDonalds continue this approach, that is:
simultaneously focus its attention on aspects of the business that require
global standardization and aspects that demand local responsiveness. When
appropriate, processes should be standardized, however, operation in local
markets necessitates the maintenance of the appropriate local flexibility.
McDonalds is adopting differentiation and cost leadership strategies
(generic strategies). In terms of differentiation, the firm attempts to be
diverse from its competitors by adding something to its product that will
provide a unique value to its customers. This is achieved through well-

designed and managed marketing activities resulting in a perceived superior

quality product and high brand image and recognition. Further, cost
leadership is achieved, not only through economies of scale but also through
learning, knowledge and experience in production and operational processes
and through effective/efficient distribution networks and manufacturing
systems.
It is recommended that further international expansion may benefit
from the use of a value chain analysis with regards to identifying the degree
of homogeneity of a new country with the ones in which McDonalds already
has a presence. Such an analysis will help to avoid expensive mistakes and
false starts, as well as achieve further economies of scale through the
transferability of the experiences and lessons learned in other countries.