International Business Sample 2

Introduction

The decision to enter foreign markets is the first step in the formulation of a strategic plan for international marketing. Organizations opting for international business expansion need to satisfy the consumers in a particular country by providing standardized products and services. Organizations are required to plan, create, and implement marketing strategies by the marketing mix of the concerned foreign market many organizations start their journeys in domestic domains. The subsequent success which follows high levels of organizational performance leads to consideration of international business expansion. Organizations that perform satisfactorily in domestic markets have the confidence to venture into foreign markets. In other cases, companies whose products perform well in foreign markets can also consider planning for international expansion (Ang, Benischke & Doh, 2015). However, every decision has positive as well as negative outcomes which can impact a business. The domain of international marketing comprises activities such as pricing, planning, and promotion of goods and services that are intended for the end users in foreign markets. This report deals with the expansion of McDonald’s in foreign markets such as China and the environmental factors that affect the process of business expansion (Cavusgil et al., 2014). This report also illustrates the market entry strategies that help in sustaining a business in international marketing.

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Company Overview:

McDonald’s is a leading organization in the domain of fast food restaurants. The company is presently counted as the world’s largest chain of food chain restaurants. The company is known for its daily customer turnover of 50 million. The company’s first outlet was situated in San Bernardino, California, USA. The capability of the business to deliver superior products timely enabled it to scale the huge market and subsequently gain market share (Chetty, Ojala & Leppäaho, 2015). The organization’s expansion resulted from the entry of Ray Kroc into the company. The vision of Ray Kroc helped the organization to cross the domestic market and consider entry into foreign markets.

The territory of McDonald’s expanded across 117 countries and it successfully opened 32000 outlets all over the world. The international business model proposed by Ray Kroc helped the organization to traverse the cultural and geographical barriers and successfully set up business in a foreign market (McDonald, 2016). The market entry strategy followed by McDonald’s i.e. franchising helped in the rapid expansion of the organization. The supporting fact for this statement is the percentage of McDonald’s outlets that are franchises. 70% of McDonald’s outlets are being run on the franchising model and it has proved to be an effective strategy for international marketing. The impact of franchising on the economy of foreign markets is also a favorable prospect for international marketing. McDonald’s became one of the fastest growing fast food service companies and global sales of McDonald’s stand at $22 billion. The company’s first site for international expansion was Canada where McDonald’s opened its first outlet in 1967 (McDonald’s, 2016). The organization’s inclination towards relying on domestic partners for quality, values, service, and cleanliness helped adapt to the tastes of local consumers with the expertise of local partners. A prominent example of a strong local partner’s contribution to McDonald’s international marketing aspirations is the Japanese partner of McDonald’s, Den Fujita, who entered into a joint venture with McDonald’s in 1971. Den Fujita opened the first McDonald’s outlet in Japan in a prominent location in the national capital Tokyo, the Ginza shopping district. This initiative attracted a large base of consumers to the restaurant and thus McDonald’s business in Japan was enhanced by huge margins in comparison to its peers. These facts suggest the urgency of a flawless international marketing strategy which can help in the introduction of products and services of an organization in an unexplored market or expanding the existing business in a foreign market (McDonalds, 2016).

Literature Review

International Market

International marketing is a complex domain and the huge requirement of analysis suggests the same. The analysis required for international business expansion involves the evaluation of cultural, political, environmental, technological, social, economic, ethical, and legal facets of international market environments. The environmental analysis required for international marketing comprises two dimensions which are identified as the management environment and the business environment. The common mistake committed by managers is negligence towards market and business environment research and the variation of research required for international marketing. Apart from the various facets of environmental analysis, managers must also evaluate the impact of changes in the business environment on different companies associated with different sectors. Business environment analysis is also dependent on market definition which is derived from the historical developments in international business expansion in the concerned geographical area and the facets of international relations with foreign companies and trade implications. Similarly, a flexible framework describing the impact of various changes in environmental factors can evaluate the feasibility of an organization in foreign markets. Marketing environment analysis is comprised of two prime divisions i.e. micro-environment analysis and macro-environment analysis. Micro-analysis is executed about regional markets while macro-analysis is concerned with global trade. The different elements of the macro environment of McDonald’s are discussed below in the report along with their possible impacts on international business aspirations.

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Operation in Foreign Market

The operations of McDonald’s in foreign markets are dependent on the state policies and regulations implemented by governments. Managers are responsible for analyzing the political environment in a concerned market and refining the risks that can inhibit the expansion of a foreign company. The political scenario of a country including the definitions of politics in different contexts has to be studied thoroughly for reporting a productive strategy for international business. The distinct facets of politics are crucial factors that influence the sustenance of businesses in foreign markets. Domestic government regulations and policies are stringent for foreign companies. Procedures and standards for obtaining permits and taxation are generally complicated for foreign businesses. Politics is one of the major concerns of managers entrusted with the task of international marketing. The foremost facet of politics in the context of international marketing is the attitude of governments toward a specific business. The uncertainties involved in politics widen the spectrum of analysis and thus diverse approaches to studying political elements are formed. The diversity in research allows managers to decide on feasible plans of action relevant to the concerned country. The unpredictable nature of politics can be termed as the bearer of political risk. Political risk arises from government activities that have an impact on a foreign firm. Activities that indicate the degree of political risk include discriminatory attitudes, limitations on the operations of the company, and the intrusion of governments in the business of the company. At the time of McDonald’s entry into China, the government had planned to build a widespread chain of fast food restaurants. The entry of McDonald’s in such a scenario was perceived by the state government as a threat to its plans. This situation required a critical analysis on behalf of managers and the outcomes rendered suggestions for increasing the prospects of McDonald’s expansion in China. Market research revealed that McDonald’s could only get out of such a deadlock situation by adapting to the indigenous culture.

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Economic Aspects

Economic aspects of a business environment are responsible for framing business models. Thus managers need to evaluate the economic developments and derive the implications of changing economies in the context of international marketing. The economic environment is evaluated concerning two distinct dimensions i.e. regional and international. The analysis of economic factors in a business environment is essential to quantify the feasibility of operating in a foreign market and use economies of scale to the company’s advantage. Competitive advantage can be determined from the direction of economic development in a specific geographical territory. The international perspective of business environment analysis comprises accessing the information on world trade policies and agreements while the regional perspective includes an evaluation of the domestic economic policies of China. The economic facet also comprises the direction of market growth or economic development in a specific market domain. The economic environment analysis creates adequate grounds for estimating their profitability alongside addressing consumer needs and competing with other firms in the market. The sole obstacle that can arise for managers is the diversity of various economies and the direction of their development. The diversity of markets is influential in the quantification of data from different market economies and derives a conclusive strategy on the methods to be preferred for market entry and marketing procedures which can guarantee the sustenance of an organization in foreign markets. The organization must also consider the economic impact of the organization’s presence in a target consumer market in different geographical territories. The market entry model followed by McDonald’s in China is franchising which accounts for profits of the local individuals who serve as franchisees. Franchising has a crucial effect on the economy of a country and thus prepares feasible grounds for executing international marketing strategies.

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Social Analysis

Analysis of social facets in a business environment clarifies the differences and similarities among different consumer preferences across the globe. Social factor analysis presents a lucid idea of the requirements for international branding. McDonald’s has shown examples of adapting to the social environment of foreign markets. For example, McDonald’s entry into the Indian market was not as amiable as supposed since the majority of the Indian population comprised of vegetarians and thus they rebuked the use of beef and pork in McDonald’s food preparations. The company adapted to this situation by removing beef and pork from Indian outlets of McDonald’s. Non-vegetarian people were offered chicken instead of beef and pork which attracted the non-vegetarian population. The social factors of the macro environment also comprise cultural facets of the environment. Cultural differences arise primarily from language differences which can be mitigated by hiring natives as employees in different outlets across China. Social factors in the macro environment also include media relations which are the crux of advertisements and promotional activities.

Technological Factors

Technological factors in a business environment are being diversified depending on the purpose and nature of the application of technology. The improvements in technology are beyond the perception of any prediction model. The technological aspects signify the capability of an organization to achieve growth. Technology is required for various organizational processes related to market research such as a collection of market-related data, management control indicators, and determination of market feasibility. The improvements in satellite communication, internet, and social networking are significant contributors to international marketing strategies. McDonald’s partnership with China’s online shopping website, Taobao, signified a crucial technological improvement (Forsgren & Johanson, 2014). This initiative of McDonald’s made the advertisement strategies equitable for the organization as well as appealing to the native consumers. Customers in China were satisfied to buy from a website of their own country and McDonald’s completed its objectives of attracting consumer attention to its brand.

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Ethical and Environmental issues

Ethical and environmental issues in the macro environment are critical factors for judging the feasibility of an organization in a foreign market. McDonald’s is ethically obliged to follow the environmental regulations in a foreign market. The ethical facet of the macro environment also indicates the responsibility of the organization towards employees and society. Environmental concerns are inseparable facets of every business and the increasing demands for environmental sustainability are forming new grounds for macro-analysis. McDonald’s must comply with existing environmental protection standards and design procedures which can promote the organization among consumers as an environment-friendly provider of fast food services (Hill, Cronk & Wickramasekera, 2013). Corporate social responsibility is also counted as a social initiative that can promote the name of an organization among society and government authorities. Businesses can progress only through association with employees and compliance with ethical obligations can also induce prolific grounds for employees to understand the organizational vision and work accordingly.

Legal Aspects

The legal aspects of the macro environment which are functional in determining the international marketing strategies of McDonald’s include legal limitations and regulations. Legal regulations are deciding factors for determining the packaging of the product. Packaging is an organizational practice that is targeted to consumers. However, strict government regulations can decrease the quality of packaging or the aesthetics of the product. These activities can reduce the credibility of the brand and may lead to losses in revenue (Poulis, Poulis & Plakoyiannaki, 2013). Legal facets while entering a foreign market are classified into three dimensions which include international law, domestic law, and the native laws of the country of the firm. Dealing with varying economic development trends can be difficult in countries with different legal frameworks. The distinct variations of legal factors invite different legal experts with skills in handling the disparities.

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Recommendation:

Globalization is the ‘go’ word for firms looking for international business expansion. Urbanization is increasing and so has the movement in populations around the world. The convergence of people belonging to various nations and different cultural divisions in a market enables a drastic modification in customer needs. Consumer behavior is also dependent on buying preferences and available goods (Chetty, Ojala & Leppäaho, 2015). Thus multinational companies like McDonald’s need to consider globalization as the basic objective. This will lead to attaining corporate confidence to thrive in foreign markets. The evaluation of macro-environmental factors allows recognition of threats and opportunities that can affect the organization in the long run. Internal analysis of a company is also crucial in determining the efficiency of the strategies framed to enter foreign markets. However, an organization like McDonald’s cannot afford to sacrifice its organizational structure and objectives to achieve an international presence.

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Conclusion:

The above report suggested the possible outcomes from a macro environment analysis of the Chinese market in the context of the international business expansion of McDonald’s. The various facets of the macro environment that are responsible for deciding whether a market is feasible for McDonald’s or not include major entities in the business environment of China. Compliance with the mentioned factors is essential for gaining a competitive advantage in a foreign market. Consumers are drawn to products that match the cultural framework of the native country and thus proper planning is imperative to thwart the competition. Foreign markets can be hostile toward new businesses and thus competent strategies can ensure that the organization achieves the requirements of international marketing (Cavusgil et al., 2014). The internet is also providing breakthroughs in advertisement and product promotion techniques. Macro environment analysis also involves quantification of data which can help the organization in estimating its efficiency. The common issue neglected by managers while analyzing the macro environment in a foreign market is the historical background of the market. In addition to the evaluation of existing trends of the environmental factors, managers must also emphasize the past trends in political scenarios, economic imbalances, and technological improvements. The analysis of past trends of macro-environmental behavior provides a prediction of the upcoming market situation (Poulis, Poulis & Plakoyiannaki, 2013). The outcomes of certain policies and events can have a significant effect on international marketing strategy. Hence managers must implement accuracy in measuring the environmental factors that serve as a viable resource in formulating international marketing strategies.