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Introduction

No business works in isolation. A business is surrounded by many things. This is called


business environment. It is a combination of many forces that act on a business like
political, legal, social forces.

This report consists of analysis of a business environment and changes in this


environment of a multination Company McDonalds corporation. McDonalds is the fast
food chain of restaurants. It is one of the largest companies in food industry. It was
founded in 1940 in California by two brothers as a small restaurant. With time it grew
into multinational company and became leader in this industry.

Executive Summary

This report contains the analysis of McDonald’s business Environment. It starts with
defining the micro and macro environments. It moves on with the explaining the macro
environment as economic, technological, demography, legal, political, ethical and
environmental environments of McDonalds. It also contains SWOT analysis of
McDonalds.

McDonalds and its Business Environment

It has restaurants in 119 countries and serves around 47 million customers daily in world.
Its 31, 00 restaurants employees 1.5 million people in whole world. A McDonald's
restaurant is operated by franchisee, an affiliate, or the corporation itself. Its 70 percent
restaurants are franchisee, only 15 percent are company operated. 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 primarily sells hamburgers, cheeseburgers,
chicken products, french fries, breakfast items, soft drinks, shakes, and desserts.
Every business has two types of environments micro and macro.

Microenvironment:

Microenvironment consists of stakeholders which effect the decision making process of


the business directly. It mainly consists of suppliers, distributors, customers, competitors
etc. Though microenvironment is not fully controllable but it can be controlled to some
extent.

Suppliers: For McDonalds suppliers are those organisations which provide raw material
to prepare fast food. Some of the suppliers for McDonalds are Nestle, Quaker, and Coca
cola. Suppliers are important as they can supply high quality products. They do it
according to the volume in demand. They could effect the performance of McDonalds
where it need to quickly switch the quantity according to demand.

Competitors: In food industry McDonalds is well established name. It has few


competitors like YUM, Burger King etc. But still need to formulate strategy to be in the
top most companies in food industry.
Customers: Customers are most important in every business. Full efforts are done to
appeal the customers. McDonalds keep forming new strategy for increasing its customer
base and retaining old customers.
Microenvironment: Microenvironment of a business is much larger and uncontrollable.
It consists of those factors which affect the decisions and strategies of business and can’t
be controlled like legal, political, social etc.

Generally PEST theory is used to analyse the microenvironment of business.

Political: Since McDonalds has its business in many countries, it has to follow the
government polices and rules of country of operation. It is highly influenced by
government policies.
Economic: Economic environment affects McDonalds a lot as sometimes it has to go
through the hard time due to inflation etc. Also if economy grows purchasing power of
people increases which becomes beneficial for it.

Social: It creates jobs in society. Also McDonalds is works with many social groups.

Technological: As technology is advancing it is taking full advantage. Efficiency is


increasing due to technology. It is selling more products through its website.

Change Management

Change is ever persistent. Changes occur due to the situations, events etc. Some of the
reasons for changes are technology, customer choice, Competition, Economy etc.
Organisations have to cope with the changes. Change could be negative or positive. They
should be able to manage changes. Change management is the approach which deals with
the change systematically. It is about how an organisation can gain sustained success and
remain competitive for a long time.
McDonalds is focusing on the Asian markets as there is much scope for growth.
McDonald's opened its first drive-through restaurant outside Beijing as part of the tie-up
that the world's biggest restaurant operator hopes will power its expansion in China.
McDonald's already has about 785 outlets up and running in China and plans to have
1,000 restaurants selling its brand of American food by the 2008 Beijing Olympics. Over
half of that potential market is represented by the dominant economies of Asia Japan,
China and India where the prospects for McDonald's look especially strong in the decade
ahead.
One critical task for McDonald's is finding new menu items that not only thrive in one
market but can be exported to others around the company's global system. For instance,
spicy chicken fillet, onion and garlic mayonnaise sandwich that debuted in the Middle
East a few years back is now popular in Malaysia and South Africa.
To help make that happen, McDonald's last year opened a food studio in Hong Kong run
by a chef and a team of nutritionists to dream up new products.
In the first quarter of 2007, McDonald's is launching a menu item in Australia aimed at
kids called Pasta Zoo, in which the pasta is shaped like little animals. The Hong Kong
food lab is working on pasta dishes targeted at adults.
Whether it's new menu items such as these in Australia, or gas-station-and-restaurant
combinations in China, Mickey D's is pulling out all the stops to keep its momentum
going in Asia.

Economic Environment

A business is affected by the economy of the country of operation. For example as


recession griped the whole world into its clutches most of the business suffered loss.
Same is true for McDonalds. As unemployment increased during recession its sales also
went down in October 2009 in USA. People have reduced their visits to fast food
restaurants as a result of decreased earnings. It sales dipped in late 2009 but in January it
global sales according to reports was not slowing down as compared to other businesses.

In 2008 when whole world was worst hit by recession it continued to grow its sales and
made robust earning the early part of the year. Thought sales in USA, the country of its
origin was not as high as international sales but still its performance was better.

In 2007, its growth was according to expectations. It kept making progress in the
Asia/Pacific, Middle East and Africa group. It global sales was up by 7%. Thus it planned
to open many new restaurants in these areas. Similarly in 2006 and 2005 its performance
was unto mark.

For growth it makes strategy for its existing restaurants, opening new restaurants and
improving international profitability. It tries to achieve economies of scale in individual
markets to increase the profitability. It keeps adding the new restaurants through
franchisee.

Technological Change and its impact

Technology plays very important role in the success of a business. As technology


changes and become advances organisations has to adapt that otherwise they can be
lagged behind by competitors. Right form supply of raw material, manufacturing and
marketing it has big role for organisation. If we talk about McDonalds technology has
improved the efficiency and sales of company. Technology makes order processing
faster. It facilitates faster and hygienic packing. Technology also makes supply chain
efficient by easy management of inventory and easy payments for their suppliers and
other vendors.

When lot of orders comes at peak times then every second counts. Technology has made
it more accurate and faster to process orders with new technology such as digital wireless
headsets, customer order displays, and timer systems. This helps to detect the any mistake
in order before it reaches the customer. The computer checks the missing items in the
order quickly which enables it to increase the customer satisfaction. Weighing the order
checks that an item is missing in it. Thus technology helps to improve the accuracy and
customer satisfaction.

Other important use of technology is in marketing the products. Their key tool for
marketing is advertising on televisions of its products. Adopting the new technology is
always costly affair, but there are many benefits of it.
Socio Cultural Environment

Since this company is form food industry it relates to the food habits of society. The food
habits of the population where it operates influence the business very much. It has to
adapt according to the society and its culture.

When it was started in USA it has image of serving American style hamburgers. There it
became very popular. Then with time it moved to other countries. For example when it
opened its restaurant in Japan it didn’t do well in beginning. The reason was the food it
was serving. Initially it had the same menu as it was serving in America. The staple food
for Japanese is Rice. They didn’t feel full till they have rice in their meal. So, later on it
added dishes like fired rice, rice burger, and fried egg burgers to its menu in Japan. Other
cultural difference was like customers were expected to stand in the restaurant which they
didn’t like. The first restaurant in Japan didn’t have the tables and chairs but in later ones
they added tables and chairs where customers could sit.
Like in India when it opened its restaurant it removed beef and pork form its dishes. It
used two separate kitchens for vegetarian and non vegetarian food. As 40 percent of the
population is vegetarian it introduced vegetarian burger in the menu.
So, above two examples explain that it has to change the menu and serving style
according to culture and society.

Demography and impact due to Demographic Changes

Demographics are the characteristic of the population like literacy rate, average age,
income, gender, race etc. demographics influences because that decides the buying
behaviour of customer. A company has to decide the target market which is much
affected by the demographics.
McDonalds target market is young people and children. This is reflected by strategy of
serving toys with the meal. About income, it targets the middle income people who are
not able to spend a lot on the food and also don’t want to compromise with the taste. This
helped it a lot in recession.

Demographics are different for different countries. For example in most of the developed
countries age structure is changing i.e. birth rate is decreasing. This is making more
people in population old. This means McDonalds have to make its strategy according to
these changes. One of the step in this direction is it has started offering free tea and coffee
to 60 plus age group. This will attract more customers of old age. Earlier it had the image
of serving food for young people like to eat quickly, but as more population growing old
it is changing according to that.

Anther example of impact demographic changes is about the income of the people.
McDonalds is growing faster in developing countries where income of people is
increasing as economy is developing. There more young people in the population and
earning more, which enables them to spend on fast food and eating out more often.

Legal and Political Environment

A business has to work according to the government policies and rules. As it is operating
in 119 countries policies in every country are different rules and regulations. These
policies might be related to business, food, hygiene etc. For example, McDonalds has to
follow the hygiene and cleanliness rules established by government in all countries.
McDonald’s business is influenced by government policies according to fast food
regulations.

The political environment influence according to factors like political stability of country,
policies for business for foreign companies, flexibility in rules for international trading
etc. This affects the profitability of the company. There are different rate of tax in every
country and different types of taxes imposed. These days most of the government are
controlling the fast food business due to related health problems.

If McDonalds is earning profits, government also expect benefits like tax and
employment. There are rules for the employing people for example in United Kingdom it
is about minimum wages. All the restaurants operating in UK has to pay minimum wages
decided by government to its employees. It should be able to protect its workers by
giving genuine compensation expected by the employees to become successful.

Ethical and Green Environment

McDonalds is always been criticised due to unhealthy image of fast food. It also copes
with the ethical issues like ill treatment of animals, exploitation of children, and
destruction of rainforests. It ruins the image of its business. There many researches which
says that fast food is not healthy especially for the children and lead to obesity and other
heart diseases. It suffered loss due to these issues many times. For example in 2002 it
went under crisis. Its share price declined and profits went down by 70 percent.

On the other side it is also participate in the conservation activities of environment. It


uses the environmental friendly fuel and methods for its products. McDonalds also
created a task force with the help of anther non profit organisation working for
environment to protect it. It works for reducing and recycling the waste.

McDonalds SWOT Analysis

The anther theory which analyses the environment of a business is SWOT analysis.
SWOT stands for Strengths, Weaknesses, opportunities and threats. Strengths and
weaknesses are related to internal environment whereas opportunities and threats are
related to external environment. Any business before launching new product or moving
to new area must do this analysis to predict the success.

Strengths:
• McDonalds is a strong brand name. It is easily recognised by everyone. It has firm
position in the market and is global brand.
• One of its strengths is that it is huge company with 31, 00 restaurants all over the
world.
• Being big its profits are also high and have good scope of experimenting with new
strategies.
• According to Forbes Magazines it one of the most liked food service organisations.

Weaknesses:
• There is lot of price competition in the market for food products.
• There are many competitors coming up due to large profits and are lowering its
position.
• Its earning is mainly dependent on the disposable income. If the budget it
threatened, people use their money elsewhere. It has been accused of serving
unhealthy food.

Opportunities:
• It keeps lunching innovative products like ‘Supersize’.
• It is using its environmental activities as marketing strategy. For example it is
advertising with its green packaging solutions.
• It can introduce healthy and low calorie burger for heath conscious customers.
• It can provide more upscale restaurants with more facilities and entertainment which
attract more people

Threats:
• More dining restaurants are forcing it to decrease the price of its burger as they have
started to offer the burgers.
• Society is becoming more and more health conscious and avoiding fast food. It has
been sued many times for unhealthy food and spreading obesity in America.
• Competitors like Taco Bell, KFC, Starbucks and Burger king.
• Other threats are related to the economic situations like current recession which has
affected the revenues of this company.

Conclusion:

McDonalds is growing at a fast pace form in spite of many hurdles in its path. Beginning
with one small restaurant in USA it has become a multinational company. This is due to
its well formed strategy and ability to implement the strategy. It keeps coming up with
new ideas to attract the customers. It also adapt according to the social and cultural
change in the society.
Thus business has to work in its internal and external environment. To make progress and
sustained success it has to clearly understand and analyze both the environments.

References

http://www.businessweek.com/magazine/content/09_47/b4156032714278.htm

http://seekingalpha.com/article/116480-what-recession-mcdonald-s-continues-its-global-
growth

http://bucknellorgtheory09.wordpress.com/2009/05/07/mcdonalds-in-beijing/
http://bucknellorgtheory09.wordpress.com/2009/05/07/cultural-differences-mcdonalds-
in-japan/

http://www.bignerds.com/papers/22822/Mcdonalds-Swot/