Objectives

 To identify the main strategic and management issues that McDonald’s had to consider to
enter into India.
 To analyze its entry strategy in the Indian growing fast food industry.
 To find out the functional strategies that McDonald’s perused to establish its strong
foothold and make India as an export base for cheese, lettuce and other products.

External Environment Analysis

External environment analysis is a primary study and analysis of macro-environmental forces,

industry analysis and competitor analysis in purview of an organization’s growth. Macro-
environmental forces are dimensions in the broader society which influence the firms within it. It
focuses on the future probability of events (Gupta, 2013). Industry environment includes set of
contingencies which have a direct influence on the firm’s action and response. It focuses on the
factors influencing the profitability of a firm within an industry while competitor analysis
focuses on predicting/ anticipating the competitor’s dynamism in action, responses etc.

Components of External Environment Analysis:

 The macro-environment/general environment

 Porter’s five forces analysis

 Strategic group mapping

 Competitor analysis

 Driving forces

 Critical success factors

The Macro-Environment Analysis

A macro environment involves influences which affect the entire economy of business. How
much influence the macro environment has on a company depends on how interlaced they are.
Some factors, such as the economy, will slowly affect every and all business. But companies
facing economic downfall, and potentially bankruptcy, are hurt more significantly than
businesses in booming industries. The six segments of the macro environment are:

 Global forces
 Political forces
 Economic forces
 Demographic forces
 Socio-Cultural forces
 Technological forces

Global forces:

Global environment is one of the

important elements to macro
environment of business. Today
competitive scenario changes rapidly and its impact on business of company. For this reason,
strategist should understand the global environment, its characteristics, functions and merit and
demerit to company. Global environment treated as whole world just as village and has changed
how individuals and organizations relate to each other. These are influenced to organization to
get project from global clients.

When McDonald’s entered into the Indian market, the global forces were very important for it to
consider. India was belonging to ASEAN Regional Forum and also member of SAARC.
Regional Trade and Beyond (RTB) was playing a vital role in India’s policy against the MNCs.
India was following socialist system. Though after 1991, it was tended to welcome MNCs, but it
was difficult for the people to come over the socialist mindset overnight.

Political forces:

Every business is limited by the political environment. This involves laws, government agencies
and pressure groups. This influence and restrict organizations and individuals in a society.
Therefore, marketing decisions are strongly influenced and affected by developments in the
political environment. Before entering a new market in a foreign country, the company should
know everything about the legal and political environment.

India was the largest democratic country with an enormous bureaucracy. After 1991 the
deregulation against MNCs’ started. Although the entry and exit of domestic and international
companies were strictly controlled by Indian Government. Some of their political leaders were
not happy to welcome MNCs’ in food industry. One of their Member of Parliament stated “we
want computer chips and not potato chips.”

Economic forces:

The Economic forces relate to factors that affect consumer purchasing power and spending
patterns. For instance, a company should never start exporting to a country before having
examined how much people will be able to spend. Important criteria are: GDP, GDP real growth
rate, GNI, Import Duty rate and sales tax/ VAT, Unemployment, Inflation, Disposable personal
income, and Spending patterns.

In 2002, India’s per capita GDP was quite low. It was around US$400. But after adjusting the
purchasing power parity, the aggregate GDP became the fifth largest economy I the world which
was US$2.66 trillion. The size of the “eating out” market in India was substantial. In 2000,
India’s food expenditure was estimated about US$77 billion. India’s food market was highly
fragmented, with millions of roadside stalls collectively accounting for a large share of the
market.

Demographic forces:

Demographic forces relate to people. The name refers to the term Demography. The latter refers
to the study of human populations. This includes size, density, age, gender, occupation and other
statistics. People are the driving force for the development of markets. The large and diverse
demographics both offer opportunities but also challenges for businesses.
During that time when McDonald’s started their operation in India, there were about 1 billion
people in India, more than 20 spoken languages and 200 dialects. Illiteracy rate was around 50%.
Among this huge population, the middle-class numbers were about 300 million.

Socio-Cultural forces:

The Socio-Cultural forces link to factors that affect society’s basic values, preferences and
behavior. The basis for these factors is formed by the fact that people are part of a society and
cultural group that shape their beliefs and values. Many cultural blunders occur due to the failure
of businesses in understanding foreign cultures. For instance, symbols may carry a negative
meaning in another culture.

India contained some anti-Western factions and both McDonald’s and KFC had been targeted in
the past. Health activists and environmentalists were very active forces and a big challenge for
McDonald’s. India’s population was 80% Hindu, who did not eat beef for religious reasons, and
12% Muslim, who did not eat pork for religious reasons. Overall 40% of the population was
vegetarian.

Technological forces:

Technological forces form a crucial influence in the Macro Environment. They relate to factors
that create new technologies and thereby create new product and market opportunities. Every
new technology replaces an older one. Thus, marketers must watch the technological
environment closely and adapt in order to keep up. Otherwise, the products will soon be
outdated, and the company will miss new product and market opportunities.

India’s technology was patchy, with areas of high technology achievement contrasted with areas
of poor infrastructure. There were frequent power outages even in New Delhi (the capital) and in
Bangalore (India’s Silicon Valley).
Porter’s Five Forces Analysis

In 1979, Michael E. Porter of Harvard University published a framework of five external forces

that helps to identify the attractiveness of an industry. This Porter's Five Forces Framework is a
tool for analyzing competition of a business. It draws from industrial organization (IO)
economics to derive five forces that determine the competitive intensity and, therefore, the
attractiveness (or lack of it) of an industry in terms of its profitability. An "unattractive" industry
is one in which the effect of these five forces reduces overall profitability. The most unattractive
industry would be one approaching "pure competition", in which available profits for all firms
are driven to normal profit levels (Dobbs, 2014).

The nature and degree of competition in an industry hinge on five forces: the threat of new
entrants, the bargaining power of customers, the bargaining power of suppliers, the threat of
substitute products or services (where applicable), and the jockeying among current contestants.
To establish a strategic agenda for dealing with these contending currents and to grow despite
them, a company must understand how they work in its industry and how they affect the
company in its particular situation (Porter, 1979).
Bargaining Power of Buyers

McDonald’s bargaining power of buyers was high. This was a high threat, because buyers had
many alternatives to global fast food. Also, there was already rivalry amongst existing
competitors.

1. Low Switching Cost

2. Many Fast Food Restaurants
3. High Availability of Substitutes
4. High Sensitivity to Price

Bargaining Power of Suppliers

The bargaining power of suppliers for McDonald’s was low. Global fast food requires steady
supply of guaranteed high-quality products as well as stable infrastructure. There were many
quality suppliers available. Perhaps McDonald’s created their own suppliers who were producing
export quality lettuce, cheese and other ingredients.

Threat of New Entrants

There was moderate threat of new entrants. There were no major barriers to entry within Indian
society and bureaucracy as well as in relatively poor infrastructure. The failure of KFC has also
inhibited new entrants.

1. No legal barriers

2. Moderate capital required

3. Brand loyalty

4. Low prices charged by existing companies

Threat of Substitutes
Threat of substitutes were moderate. Indians were very heath conscious. As fast food contains
high calorie and fat, they preferred home cooked meals. Also, being so sensitive about price,
they considered home cooked meals less expensive.

Rivalry Among Competitors

Rivalry was very strong. The competition from the local food retailers in India was intense. The
food retailers had been doing business for years. Their familiarity with the market and the
understanding of the local taste gave them a competitive edge. There were numerous eating
joints which offered snacks and meals with affordable price tags.

1. Intense Price War

2. High level of Advertising and Promotions

3. High Exit Barriers

References

A. Gupta, (2013). Environment & PEST Analysis: An Approach to External Business

Environment. Modern Social Sciences, vol. 2(1), (ISSN: 2169-9917), pp. 34-43. Retrieved from
http://www.modernscientificpress.com/Journals/IJMSS.aspx

Michael E. Dobbs, (2014) "Guidelines for applying Porter's five forces framework: a set of
industry analysis templates", Competitiveness Review, Vol. 24 Issue: 1, pp.32-
45, https://doi.org/10.1108/CR-06-2013-0059

Michael E. Porter, "How Competitive Forces Shape Strategy," Harvard Business Review, May
1979 (Vol. 59, No. 2), pp. 137-145.