The aims of the following report indicate the identification of external factors which have a prominent impact on the levels of organizational performance. The report reflects on the completion of two distinct objectives. Division of the report into two sections serves as a viable resource for accomplishing the objectives such as knowing the factors in a market’s external environment and evaluating the impact of demographic factors on the strategic direction of an organization. McDonald’s has been selected as a case study for the report and its global presence in the food and beverages industry is accountable for its selection. The report’s first section refers to the utilization of Porter’s market forces analysis and PESTEL analysis to understand the potential of McDonald’s to sustain the business environment in the UK. The second objective is accomplished in the context of a specific theme i.e. demographic factors in this case and estimating its impact on the strategic decisions and policy formulation for international business.
The contemporary business environment has been characterized by drastic evolution in terms of theory and practice associated with business management. Traditional models of business have been modified to address the growing needs of a global market. The major factors that have had a significant impact on the domain of business refer to globalization and human resource management. Technological advancements and increasing government support for multinational corporations could also be accounted as influential factors on the prospects for globalization. Business organizations recognized the need for sustainability and the role of international business in accomplishing the same and therefore the preferences of the organizations were shifted from stagnant domestic profits towards a share in the global market alongside diverse sources for profit acquisition.
Despite the prominent advantages presented by international business to organizations, the barriers that affect international business are often neglected by many organizations. The outcomes of such neglect are observed in terms of the failure of the organization’s business initiatives in international jurisdictions. External factor analysis in a specific business environment accounts for the use of models such as Porter’s market force analysis and PESTEL analysis. These factors are observed in the macro-environment of the organization and are dependent on environmental conditions such as political stability, market conditions, social behavior, and customer power. PESTEL analysis describes the political, technological, social, economic, environmental, and legal aspects of a specific market. The use of Porter’s five forces analysis is also noted in the case of external environment analysis since it illustrates the market conditions such as the bargaining power of customers and suppliers as well as the competitive intensity in the market.
McDonald’s has been assumed as the organization in the food and beverage industry to evaluate external influencing factors on international business performance. McDonald’s found its origins in California in the year 1940 with Richard and Maurice McDonald. However, the organization had not acquired its trademark brand image until 1955 when Ray Kroc laid the foundation of McDonald’s Corporation. Thereafter the organization has progressed through many years of operation in the food and beverage industry and is accounted as the largest fast food chain in the world (Mcdonalds, 2017).
The expanse of McDonald’s in the international business scenario can be validated through its presence in more than 120 countries spread across 31000 restaurants. McDonald’s has made efficient utilization of the market entry model of franchising which facilitates the organization with almost 26,000 restaurants. The restaurants are operated by franchisees based on the brand image and product specialty of McDonald’s in return for a specific fee paid to the organization. McDonald’s has successfully obtained a presence in countries such as Malaysia, China, France, and India through its globalization initiatives (Mcdonalds, 2017).
The international business initiatives of McDonald’s in the United Kingdom are more likely to be affected by external factors in the business environment. Therefore the organization has to evaluate the effect of external factors on the business environment as well as the competition intensity in the UK market to ascertain the feasibility of expanding business in the selected international jurisdiction (Mcdonalds, 2017).
The distinct external factors that could be impactful on the performance of McDonald’s in the UK market have to be estimated with the implementation of PESTEL analysis. PESTEL analysis is observed as a major resource for depicting the significant characteristics in the external environment for the organization in terms of the political stability in the UK, economic conditions concerning prominent events such as BREXIT, technological advancements in the sector of business automation, and lifestyle changes as a profound social impact on the business performance of McDonald’s.
The competitive forces observed in the market can be easily ascertained through Porter’s five forces analysis. Market competition is also a prominent influence on the business feasibility for an organization and Porter’s five forces account for promising outcomes in the context of the individual market forces which are associated with a major impact on the strategic direction of McDonald’s in response to international business initiatives.
Political factors have been a substantial influence on the business activities of multinational corporations since political factors have inherent impacts on the economy, social structure, and legal frameworks in a specific environment. As per Alvarez, government decisions that are influential on the macro environment of McDonald’s in the UK refer to the outcomes of analyzing political factors in the business environment (Alvarez, 2016). The external factors that are responsible for altering the business performance of McDonald’s in the UK include the proliferation of international trade agreements, formulation of new health policies, and changes in taxation laws. International trade agreements can be a flexible opportunity for McDonald’s to acquire a competitive advantage ahead of peers in the UK market (Berger, 2010). Elements of business such as supply chain management could be associated with the implications of flexibility in international trade agreements which are reflected in the outcomes of business growth and development.
As per Brinkmann, the political stability in the UK after BREXIT has been a positive factor for the business organization since the new leaders such as Theresa May supported the establishment of multinational corporations to sustain the national economy (Brinkmann, 2014). Therefore, it can be concluded that the political factors of the macro environment identified for McDonald’s pose substantial opportunities in comparison to the observed threats.
According to Chang, the impact of economic factors on the business sustainability of McDonald’s in the UK market has to be evaluated from the statistics about the efficiency of McDonald’s in catering to economically disturbing scenarios (Chang, 2016). Addressing the adverse impact of economic factors could be useful for estimating the response strategy to address the requirements of the business environment. The estimated global revenue of McDonald’s in 2009 was estimated to be above $25 billion as depicted in the image below (Figure 1).
Figure 1: McDonald’s Revenue
Source: (Chang, 2016)
Figure 2: Financial Analysis of McDonald
Source: (Maas & Reniers, 2014)
The above image (Figure 2) suggests the revenue growth after the year 2009 and subsequently, the organization acquired revenues reaching almost $30 billion in the financial year 2012-13. Therefore, Myers said that the organization has to consider the implementation of its financial strength in the moderation of economic factors such as a slowdown in the Chinese economy and limitations on economies of scale which reduce the domestic profits of McDonald’s (Myers, 2013).
The primary economic concern to be addressed by the organization must be the BREXIT which can cause exclusion of the UK from all benefits of trading in the European Union. Furthermore, the necessary impacts of WTO negotiations on the international trade relations of the UK in the event of BREXIT agreements can be observed as a contributor to the ambiguity of the business environment.
As per Maas & Reniers, social factors also have a considerable impact on the macro environment of a business organization since society is formed of customers and thereby factors such as culture, lifestyle, behavioral aspects, and wealth disparities can have a substantial effect on the performance of McDonald’s in the UK (Maas & Reniers, 2014). Therefore it is essential to determine the socio-cultural changes that must be addressed to ensure feasible business operations in the UK market. Wealth disparity is a profound factor that can be observed in the social setting of the UK market and this signifies that there is a substantial demarcation of low and medium-income groups.
Therefore product differentiation can be utilized as a notable resource to attain specific advantages in the form of an increase in the number of customers. As per Nahavandi, diversity among customers is also a notable aspect that can be observed in the social factors illustrated in the PESTEL analysis of McDonald’s in the UK (Nahavandi, 2016). The increasing number of youth in the population of the UK as depicted in the image below (figure 3) is also accountable as a significant social factor in determining the suitable response in the production and marketing strategies of McDonald’s.
Figure 3: Population of the UK
Source: (Ogiela & Ogiela, 2014)
According to Rosemann & Brock, alongside the above-mentioned social factors, McDonald’s also needs to consider the changing lifestyles of UK residents and the modifications in their eating habits to apprehend the feasibility of business (Rosemann & Brocke, 2015). As per Jeston & Nelis, the development of healthy eating habits, as well as promotional campaigns criticizing fast food, can be a major influence on customer behavior thereby leading to detrimental circumstances for the organization. Therefore McDonald’s could opt for improvisation in its product’s quality and enhance the health value of the fast food products facilitated by them (Jeston & Nelis, 2014).
As per Storey, McDonald’s has been able to acquire a major share of its competitive advantage from technological advancements. The use of technological factor analysis in the external environment of McDonald’s is intended to drive opportunities that can be obtained through technological applications (Storey, 2014). The use of mobile devices has increased by a drastic margin in recent years and hence it can be identified as a vital resource for communication of advertising strategies and production assurance can be provided to customers.
Business automation and the use of information systems increase the flexibility of customer service as well as increase the prospects for customer support facilities. Research and development can also be noticed as having a major impact on the technological aspects of McDonald’s since they could be able to derive environment-friendly food products as well as integrate novel aspects in the organization’s marketing framework.
As per Sadgrove, environmental factors are considered as profound impacts on the performance of McDonald’s in the UK business environment. Significant factors that are associated with the environment and have a formidable impact on the international business prospects of McDonald’s in the UK include climate change, waste management, sustainable business strategies, and the requirements of CSR initiatives on behalf of the organization (Sadgrove, 2016).
Environmental concerns can be addressed through compensation for farmers which could help in the sustainable growth of farms alongside reflecting a decrease in the negative impact of the business activities of McDonald’s. McDonald’s would also require substantial emphasis on the revision of production and distribution strategies which can resolve the notable pitfalls observed in the context of environmental factors in the macro environment of the organization.
Legal implications associated with the business activities of McDonald’s are indicative of the references to employment rights, health, and safety regulations, and the legislations for animal welfare. Employment rights envisage equal payment for employees irrespective of gender, race, or age and only vary based on the job description. According to Wachowiak, anti-discrimination laws also fall under the scope of employment rights as they prevent discriminatory behavior at the workplace based on gender and race (Wachowiak, 2016). Health and safety regulations require McDonald’s to comply with specific standards of hygiene in its products alongside safety precautions at the workplace. Animal welfare regulations could also be observed as potential influences on the supply chain management of the organization which could subsequently result in increased costs for McDonald’s.
Market forces have been identified as drivers of change in the strategic decisions and policies of an organization. Porter’s five forces analysis reflects the individual intensities of the market forces and their possible implications for the performance of McDonald’s in the UK market. As per Koppes, generally, the market forces are considered to be indicative of impact on the development of industries on an overall basis rather than being limited to organizational level impact (Koppes, 2014). The five forces utilized in Porter’s model include competitive rivalry, the threat of substitutes, the bargaining power of suppliers, the threat of new entrants, and the bargaining power of buyers.
The competitive rivalry has been noticed as a high threat when analyzed from the perspective of the fast food and beverages industry. The numerous firms in the food and beverages industry account for higher competitive rivalry since the characteristics of lower switching costs, higher aggressiveness of other firms, and the implications of product differentiation are associated with the same. Competitive rivalry can, therefore, be assumed as a profound indicator of competitive intensity in the UK fast food market.
The bargaining power of buyers in the fast food industry is a strong market force of the different substitutes, availability of low switching costs with products of other brands, and the assortment of brands operating in the UK market. Customer preferences, as well as income disparity, also imply sustainable intensity of the bargaining power of buyers’ market forces. McDonald’s could respond to this market force through the implementation of appropriate strategies centered on the benefit of customers. As per Sadgrove, suppliers’ bargaining power is perceived as a market force with minimal threat in the UK fast food market (Sadgrove, 2016). The primary causes for the limited authority of suppliers can be apprehended in the vertical integration of suppliers as well as the availability of numerous suppliers providing raw materials and equipment to the massive assortment of fast food chains operating in the UK.
Therefore it can be concluded that the market force of the bargaining power of suppliers is characterized by the abundant availability of resources which subsequently leads to the privilege of McDonald’s to switch between suppliers frequently in adverse market situations or to cater to the competition levels. According to Ogiela & Ogiela, the threat of substitutes is a moderate force in the market environment of the UK fast food industry since the availability of substitutes is high and is complemented by the factor of product quality of McDonald’s (Ogiela & Ogiela, 2014). It has been observed that McDonald’s is the preferred choice of customers for burgers and fries and therefore the preference of customers for substitutes can be affected by this perception. Hence the moderate nature of the threat of substitutes can be validated aptly. The threat of new entrants depicts the low level of threat for McDonald’s since the new competitors would have to face the formidable challenge of developing a brand image at par with that of McDonald’s.
As per Maas & Reniers, even though the brand image of McDonald’s is a notable factor in the competitive environment analysis, the considerably lower capital required to establish an organization in the fast food industry in the UK as well as the implications of lower switching costs and prospects for substitutes can be a profound influence on the business prospects of McDonald’s in UK (Maas & Reniers, 2014). The management of McDonald’s should consider the individual market forces and their varying intensities in unison with the outcomes of market research and external environment analysis to formulate strategies that can capitalize on accessible opportunities in the market alongside placing limitations on the detrimental effects of market forces and external factors in the business environment.
The aims that have been addressed in this section of the report include the analysis of demographic factors, their potential impact on the food and beverages industry, and subsequently the impact of the elements on policy framing and strategic decisions of McDonald’s. Thereafter, the critical reflection of the demographic characteristics helps in obtaining a lucid impression of the response of the organization to demographic factors.
As per Ogiela & Ogiela, the responsiveness of the organization has been depicted in the form of recommendations for enhancing the policy formulation and decision-making approaches of McDonald’s to address the demographic variables in the context of the organization’s international business activities in the UK (Ogiela & Ogiela, 2014). The selection of demographic factors as a suitable theme for the report can be validated on the grounds of the massive customer base of the fast food industry in the UK which can be understood based on demographic factors indicating the characteristics of customers in the UK.
Demographic factors can be defined as the specific criteria used for the assessment of a particular population. The factors including age disparity, gender, employment rates, income disparity, and religious influences are considered demographic variables with ample impact on business initiatives. As per Maas & Reniers, demographic factors can be integrated as a potential element in the formulation of strategies for sustaining the competitive environment in the UK alongside the estimation of notable external factors in the environment affecting the globalization initiatives of McDonald’s (Maas & Reniers, 2014). McDonald’s is a service-based organization directed towards the benefit of customers and hence the impact of demographic factors can be observed in the case of the organization. Demographic factors serve as credible inputs for decision-framing and policy formulation in response to international business requirements.
The relevance of demographic factors for the strategic direction of the enterprise can be evaluated precisely only after comprehension of the significance of demographic factors. McDonald’s is subject to the impact of factors such as age distribution changes, migration of individuals from rural and semi-urban locations, increasing ethnic diversity, education rates, and family structures observed in the demographics of the UK population (Myers, 2013). The illustration of the distinct factors can be ascertained promisingly through the evaluation of specific population characteristics such as the size of the population, population density, occupational classifications, and gender distribution in terms of quantitative metrics. Since customers form the market substrate for a service-based organization, it is necessary to consider demographic factors for framing policies and decisions to alter production, distribution, and marketing approaches.
According to Ogiela & Ogiela, the migration of the population from rural and semi-urban areas could be a potential opportunity for McDonald’s to acquire higher revenues by building new stores in urban locations and catering to the high demands of fast food by the migrated population. Ethnic diversity is gradually increasing in the UK since the reputation of the country as a financially prospering state and a hub for international students accounts for diverse customer preferences. McDonald’s could be able to cater to the diverse requirements of ethnic groups through the introduction of new production methods to address the customer requisites (Ogiela & Ogiela, 2014). Family structure can be a potential influence on the decision-framing strategies of McDonald’s since it could ensure appropriate packaging and pricing approaches to address the needs of different family structures. The emphasis on the family structure for identification of decision and policy formulating approaches in the case of McDonald’s can also be reflective of acquiring customer loyalty. Changes in age structure are specifically noted for their impact on the decisions and responsiveness of McDonald’s to international business requirements.
The trends which are observed in the age structure in the UK’s demographic factors reflect the increasing percentage of youth in the population and therefore the strategic initiatives in production, distribution, and marketing have to be aligned with the youth. As per Maas & Reniers, it has been observed that the market forces of competitive rivalry impose a considerable impact on the business feasibility of McDonald’s in the UK market and therefore the organization can leverage its emphasis on the base of young customers to ensure competitive advantage (Maas & Reniers, 2014). The responsiveness of the organization to age distribution can be considered as a significant alteration in strategic pricing and marketing initiatives for the acquisition of outcomes such as customer loyalty and retention in the specific customer base i.e. youth.
The description of demographic factors and the subsequent approaches implemented by McDonald’s to respond in terms of decisions and policies indicate that the response of McDonald’s must be aligned with the focus on customers. The emphasis on customers can be validated on the grounds of the nature of McDonald’s as a service-based organization. As per Ogiela & Ogiela, the individual demographic factors that affect the performance of McDonald’s have to be reviewed critically alongside the suggested recommendations for addressing the vested issues in the factors for the organization (Ogiela & Ogiela, 2014). The critical evaluation is necessary for the development of creative recommendations that can address the impact of demographic factors in the context of McDonald’s international business activities in the UK food and beverage industry.
The first reflection that can be derived from the critical evaluation is the need for marketing mix placement for the selected target customer base of youth. This initiative has to be applied in response to the objective of McDonald’s to cater to a demographic factor that could have a substantial impact on the business performance of the organization. The organization can be able to tap into the customer segment of youth through the utilization of social media, mobile apps, and advertisement campaigns with an illustration of vibrant colors and imagery.
These measures can be aptly influential as responses to the major variations noticed in demographic factors. Product placement is also a necessary aspect of the marketing mix for McDonald’s and it could ensure this through the location of new stores and outlets in the proximity of educational institutions which could enable students and younger population to access McDonald’s products easily (Rosemann & Brocke, 2015). Pricing of the products according to the financial standing of the members of the younger population can be evaluated as a considerable modification in the marketing mix of McDonald’s which can render plausible results.
Changes in family structures can be addressed by the organization through changes in its store and restaurant interior layouts to accommodate larger families on a single table ensuring the provision of combinational offers as well as promising discounts. Consideration of migration as a potential influence on the demographic constitution in the UK market and the institution of more stores for catering to the increased customers due to migration has to be critically evaluated. It would be sensible for the management to opt for measures that are based on feasibility reports of the migrants preferring fast food products. It has been observed that individuals in rural and semi-urban areas are not inclined to consume fast food products frequently and hence the initiative of increasing the number of stores can prove to be inconsequential in such scenarios (Storey, 2014). Furthermore, the different consumption patterns observed in large family structures could prove to be detrimental to the organization’s strategic responses to a demographic factor of family structure.
As per Maas & Reniers, cultural diversity has also been noted as an influential demographic factor in the formulation of policies and strategic decisions of McDonald’s. The recommendations for ensuring a wider variety of products on the menu for customers from distinct cultural and ethnic backgrounds can be crucially evaluated as beneficial for the organization (Maas & Reniers, 2014). Therefore the most appropriate recommendation for McDonald’s that can be derived from the critical analysis is the emphasis on students and youth to acquire prospects for sustainability.
The suggested recommendations for catering to the impact of demographic factors on the performance of McDonald’s are characterized by advantages alongside prominent disadvantages. The recommendations presented in this section are intended to address the limitations that can be noticed in the responses of McDonald’s. Utilization of a marketing mix as a viable strategy to address the demographic factor of increasing youth percentage in the age distribution of the UK can be associated with other recommendations for improvement. Product placement of the company’s products can be applied to retired individuals and working personnel alongside the youth since the working personnel is also consistently associated with social media and online platforms for the promotion of products.
Cultural and ethnic diversity has been observed as a formidable factor in the demographic constitution in the UK market thereby signifying the requirement for diversification of products. Family structures in the UK and increasing migration rates should be addressed by the expansion of stores on a trial basis to apprehend the customer influx and develop new stores according to the outcomes. The pricing mechanisms have to be decided in the implications observed in the decisions and policy of McDonald’s by inducing flexible pricing for students. It can be observed that the strategic responses of McDonald’s to demographic factors in the UK can be improved further with the consideration of environmental factors and the competitive intensity prevalent in the market.
The report was able to accomplish distinct objectives such as the identification of external factors in the business environment of the UK that could influence the performance of a service-based organization, McDonald’s. Another profound highlight of the report was observed in the description of critical reflection on demographic factors in the UK market alongside the responses in the context of decision-making and policy changes. The illustration of plausible recommendations to enhance the outcomes of suggested strategic responses of McDonald’s is also presented in the report.
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