Challenges faced by McDonald’s in Nepal
Question:
Discuss about the Analysis Of McDonald Market of Nepal.
McDonald Corporation was set up in the year 1948 and took one of the most popular as well as valuable brands. It also dominates in the international market under the segment of fast service restaurants. McDonald owns around 30000 restaurants in approximately 119 countries of the world that serve about 68 million customers every day. Every nation had specific challenges for McDonald in enhancing and improving their position (McDonald’s Corporation USA, 2010).
McDonald is the publicly traded organization, and there are around 80% of its restaurants around the globe, which work as a franchise. The competitors of McDonald include Burger King, Subway, YUM, and Wendy’s, that run few favourite brands like Pizza Hut, KFC, Taco Bell, and A&W. McDonald leads in the industry for its employees, sales, net margins and market cap (McDonald’s Corporation USA, 2010). The principal reason behind the success of the company is its quality standards, through which they can maintain itself around the world, despite its area constraints at certain places (McDonald’s Corporation USA, 2010). The company has also developed itself consistently with its new menu items, and in this way, they always attract the new customers. The primary purpose of this report is to analyse the international expansion of McDonald in the market of Nepal. In the context of this macro analysis, CSR and ethics of the company will be discussed.
Nepal is the country of diverse culture, geography, religions and political instability. Nepal had faced many issues due to clashes in government, which is surrounded through the complex situation of politics of Nepal. The major followed religion is Hinduism in Nepal. The government give actual value to tourism and contribute towards alleviation of poverty, economic growth, and equity.
The most significant problem for the multinational companies is their international strategy in the time of diversity when they move towards overseas expansion. The same challenge was faced by McDonald when they entered the market of Nepal (Pathak, 2006). They went through public relations problems, and it was very challenging for them to cope up with it and come up with the solution. Few of the primary variables in this context were customers, suppliers, the international brand image of the organization and government. The psychological challenge which the people of Nepal face is unhealthy food habits. This is mainly right in case of value meals that offer a considerable portion of the unhealthy food items. At fast restaurant segment, the nutritional value is lead to campaigns as well as legal actions (Galanakis, 2016). One of the enormous outcries is related to the promotion of this food product between the socio-economic group, as well as the direct correlation with the problem of unhealthy food among people. About his, McDonald has come up with much more healthier products in its menu and has accordingly shifted its marketing.
In Nepal, most of the population prefer to have local food and they are not prone towards eating fast food. Previously, KFC and Pizza Hut has also faced the setup in Nepal. Therefore, in order to enter in the market of Nepal, it is important that research needs to be on the culture, values, habits, and food preferences of local people. Just like India, there are many Hindu residing in Nepal, and therefore beef is ban in Nepal.
Economic Analysis
To enter in foreign market, where consumption of beef was mainly off limit, it was quite challenging as well as ambitious for the company. The objective of the company was to get inspired by culture of Nepal and to impart the best experience of food for the customers of Nepal, so that they can bring spice in their life (Galanakis, 2016). The company also aimed to bring change in the local perception of the people towards their new items, and remove fear among the people of Nepal for the family dining. The management of McDonald had also advertised the company as the simulator and try to advocate their culture and family values. The language and communication diversity is the highest element of the culture. The most significant issue for McDonald came up at the time of its launch in the market of Nepal, and that was their public image, for carrying out the global food chain, that didn’t match up with the standards of Nepal (Mohammad, 2001). There were even concerns raised on the preparation of burger at McDonald.
Economic Analysis
Instruments of trade policy
It is essential that organization should be cognizant of tax, which is accessible with the condition required by the individual government, under which they operate their business. This factor mainly provides a guarantee for planning the operations of MacDonald franchise. Similarly, the organization also try to declare about the company’s economic standing, which they are operating (Charles, Hwang & Kim, 1990). The rate on which the economy of any specific country analyses the growth is referred to the consumer’s purchasing power of that particular country. Along with that, in the case related with franchise working in the specific economically challenging nation, the product value needs to be more as compared to the developing items in the market, then, in that case, the franchise should understand specific steps for maintaining the scale of economy. In idea to this, before market penetration, it is essential that market should undertake the adequately conducted market research, mainly in the economic environment movement.
Why governments intervene in trade
Government intervene in the trade so that smooth flow of trade can be undertaken. It is important for McDonald to make sure about the trade policy of Nepal before entering in that market.
Regional economic integration
Companies working in the fast food industry are usually not given any excuse for their troubles and disagreement. Rather than that, they own their concerns about the economic control. Franchise and branches of McDonald hold the inclination towards facing hardships about the respective country of the organization. These are also hit by the changes in rate exchange and inflation (Claudio, 2001). Therefore, the customers are facing the stalemate to move their account or either they should use the fast food chain, such as McDonald. Furthermore, all these chains might have come up with the issues of its impact relying on the economic environment. In this matter, the problems rely on consumer response, and how the same can create influence on necessary sale (Claudio, 2001). In Nepal, the spending capacity of people is changing day by day. The rate of inflation creates the goods expensive that is often not affordable by most of the people. This trend is changing in Nepal nowadays, as people are trying to save a lot for their future and are even spending on food. In Nepal, people take their buying decisions according to the cost of product, which might become disadvantage for the popular international brand like McDonald.
Instruments of Trade Policy
Managerial implications
About the company’s operations tend to McDonald towards importing various raw materials in the particular countries, if there is supply dearth. The rate exchange often oscillates to play an essential role in organization operations. For data, stores of McDonald often deal with the deliberation about the microenvironment (Bondy, Moon & Matten, 2012). The global supply of the country, along with previous rates are included in the elements, in which assurance of attaining success is required for the overseas operations of McDonald.
Inflation Rate & GDP- According to statistics 2017, the inflation rate of Nepal was around 4.48% as compared to previous year.
GDP in Nepal increased from 7.50% in the year 2016 as compared to last year. the yearly growth arte of GDP in Nepal was 4.38% of average between 1993-2016, which has reached till 8.60% in the year 1993 and low of 0.10% in the year 2001.
Political systems
There are few companies who believe that Nepalese are highly patriotic, and the same might impact the business environment of global franchise. The factors like instability of political parties, consumer taxation can impact the business. The system of taxation in Nepal has changed from time to time and this had directly affect the business of franchisee over there. The quota system changes is also a big issue for franchisees. For instance, government form new rule and reduce the quota, that organizations can import, which they might have directly impacted the business.
Government policy and FDI
Organizations business operations are usually influenced by the state policies and government. The business of McDonald also exists under the control of rules imposed by government and regulations (Galanakis, 2016). The critical problem related to controlling the activity of a food is healthy and various other issues include employee laws, license, tax problems, etc. McDonald adopts the policies of local government along with overseas policies of investment on their business strategy of the franchise (Samuel & Douglas, 2006). Domestic state political instability is also impacted by the business of McDonald. The company works under the control of regulations and individual policy of the operations. The market also emphasizes over various fields that are concerned with workers protection, environment, and health. All the components are viewed as per the government licensing control in case of restaurants of a specific country.
Democracy and totalitarianism
Nepal communist parties are originated through reducing enemy class, and they are inclined towards totalitarianism, which is rooted through single party. Nepal is the centrally planned country, where no individual rights exist.
Legal system
For data, there are various impending legal issues of McDonald (Samuel & Douglas, 2006). In Nepal, where particular rights encroachments, as well as scared laws violation, pertains towards the inside food. Meat extension in the menu in Nepal is considered as unpleasant and is also against various religions.
Different countries
There are multiple studies conducted about the McDonald branches violation in the context of the previous employment laws in the specific target market (Samuel & Douglas, 2006). As it looks apparent that organization is enhancing dramatically, it is better to deal with the right set up in particular approach in the market, which intends to work with it. In this manner, the organization can easily afford to have a right way in establishing the relationship with government. It is compulsory to go with the rules as well as procedures to run as per operations (Samuel & Douglas, 2006). For instance, stuff laws, registrations, taxes, and safety rules. If all companies try to maintain the laws, then in that case companies along with society will gain benefits. Being a food giant, McDonald is highly responsible towards the legal problems.
Why governments intervene in trade
Corruption rate is high in Nepal that can impact the business of McDonald over there.
Socio-cultural
Articles related to McDonald global strategies seem to be functional in various areas and offer guarantee about the organization’s profitable returns. To show, the company has improved for setting up the decisive perception from their customers. The company is also indulging in various customers, having multiple characteristics (Samuel & Douglas, 2006). It is also analysed that the organization has various given markets like India and America. The company has even started the value set of meals service that offers the appropriate level of quantity in the particular markets (Galanakis, 2016). Along with this, customers who are aged below thirty-five are referred as more ordinary customers of the company franchise. It is analysed that multi-character of McDonald is viewed nowadays through its challenging importance of the information, related to the focus on nearby markets (Samuel & Douglas, 2006).
This method is primarily explored as the market research in the area of business. All the information related to the expected fields and request in markets act as a barrier to organization success, and if this area is abandoned, then everything can be corrected. In case of McDonald, they have set up the right plan in exploring market requirement. The company also make use of concepts related with consumer behaviour in the purchase plan as well as product personality to its benefits that can be easily seen in case of Nepal market, as the organization plan to remove the Meat items from their food menu. It is essential that McDonald should try to obtain the information through the target markets, along with information related to individual customers of the firm. It is highly imperative that before the company is given with franchisee for a specific business, complete market research is undertaken, to set up the acts, which can confirm the public policies and ethics of society (Galanakis, 2016). The organization should explore the shifts in areas like purchasing formula and consumer behaviour of markets. Mainly, it’s the primary condition for performing the appropriate customer relationship management in the company. Along with this, the organization should also provide a review of the local society to understand better as well as for producing the blueprint of the right items.
It is analysed that lifestyle of the people is also changed and the changing demand affects the McDonald. Consumers in the modern society expect to have the highest service level along with advanced hospitality services. Along with this, the changing demand is variant according to country and society. For instance, Hindu residing in Nepal prefer to have vegetables, where else Muslim prefer to avoid pork (Kolk, 2015). To meet the expectations of customers, McDonald requires to conduct research and fulfil the requirements by offering useful food products.
In Nepal, there are around 100 ethnic group’s residing, having their different cultural values as well as norms and even different lifestyle that had negatively shown prospects towards franchising business. It is noted that franchisee can attain manpower at low price, which can depict positive side of overseas franchise in Nepal.
Regional economic integration
Culture of a society
Hofstede, who is the famous researcher has explained, culture as the joint programming of the mind that differentiate group members from one another. Companies have moved towards the international market for creating value and for gaining competitive benefits. One way of doing this is by initiating the cultural diversity because individuals coming from different background and experience can be brought together in one place (Kolk, 2015).
Setting up the international platform, permits the companies and individuals in communicating with one another, regardless of its language, time as well as space. Globalization also leads towards the vast options, but simultaneously it also gives rise to many threats. Kolk (2015) has mentioned in his article, that through the launch of McDonald in Nepal, it’s seen as the reflection of spreading American culture. In starting, people of Nepal had a mixed feelings about the company’s presence in their country. Mainly, the youngsters, and especially the high school and college students enjoy the food taste of McDonald, as it was new. Nevertheless, many peoples have argued that food McDonald is not good, and expensive. It was noted that not only the food ingredients was one thing that needs to be modified at McDonald, but they also learned about the challenging ways of getting aware about the religious value and beliefs of Christians, Muslims, Hindu, and Jain in the country and try to adopt the same through its food (Kolk, 2015). Colin & Alan (2008) has recounted an incidence that in the year 1990, McDonald came with printed bags that shows the flags of around 24 football championships competitors. The issue that arose was that it includes the flag of Saudi Arabia, including their religious words: “There is no God, but there is only Allah, and Mohammad is their prophet.” This created the controversy among the enormous Hindu population and the same created scandal and impacted the reputation of the company (Colin & Alan, 2008).
In every country, McDonald has tried to developed thrive towards developing the menu, which can adjust to the culture and taste of the people in that particular country. This has helped the company to be unique in offering the quality and excellent quality of their food items (Barnes, 2008). McDonalds CSR strategies have also assisted them in exploring the requirement of an individual in their destinations and supported them in developing the solutions for their food products, which goes with needs (Smith, 2011). Therefore, McDonald is considered as mindful of the diverse requirement of their customers.
The core values of the company are all aimed towards promoting the corporate social responsibility of the company. This is attained through the offering value to customers, business partners, and supply chain or any other, with whom the company is doing business (Cooper & Edgett, 2009). McDonald also acknowledges the evidence that if customers are the main reason behind the organization success, then they should be given highest value to the company. Therefore, the company always strive towards creating the welcoming environment for their customers.
McDonald also gives value to their employees and mention that they are highly committed towards their career growth and development by imparting them with a comprehensive training plan. Perhaps, it’s the highest CSR, which is provided by McDonald’s (Cooper & Edgett, 2009). The company also empower and give value to their employees for enhancing the commitment and their success.
McDonald has always received achievement in whatever area they have worked. Along with that continuous achievement is also seen in organizational performance through innovation and training. Therefore, McDonald has grown up as the world’s highest fast-food chain by offering commitment towards attaining its set CSR and maintaining the business ethics. As per Pride & Ferrell (2008), McDonald is successful in achieving the goals through its initiatives; therefore customers can see the positive side of the company (Harris, 2009).
McDonald also tries to maintain the high business ethics, and for that, they conduct the business with high ethical and quality standards (Rappa, 2011). The company also undertake their business activities with honesty, high integrity as well as fairness for both their suppliers and customers. McDonald also gives value to their community and strive to move back towards the society by sponsoring the different initiatives for a community like education programs (Cooper & Edgett, 2009). The philosophy of McDonald is to create the world a better place to live. Being a public company, McDonald like to do profitable business with all their stakeholders; therefore, they emphasize over doing profitable business through following ethical conduct in their subsidiaries. This is mainly attained through maintaining the high standards of ethics (Facella & Genn, 2008).
The CSR framework of McDonald offers the base for the report, which includes stricture for maintaining the sustainability. This framework emphasizes over five areas like a planet, people, sourcing, food, and community (Nica, 2013). For creating the share value for the society, these five areas act as a pillar. Applying the right information, reporting, infrastructure enhancements will serve important in organizational success. In the current years, they will be able to develop the specific goals for all the efforts taken in advancing towards the journey of offering good food. Both the sustainability and CSR report is shared with all stakeholders so that the organization can stay transparent in front of the public. Performance information mainly cover the performance of the company in nine markets such as China, Japan, and France, Brazil, UK, US, Canada, Australia, and Germany. Both Japan and Brazil are entirely operated by the franchisees. Various factors like revenue, system-wide sales, as well as producing income are depicted by top markets, and 70% of company’s revenue is generated by it (McDonalds, 2012).
Conclusion
Internationalization of any business needs to have innovativeness, tact as well as finance. This type of set up explores the actual life company and try to compare it with the global process with theories. McDonald is considered as a multinational organization. As environmental factors impact the business of McDonald, the company plan strategies to enter in overseas market through understanding its culture and people. Presently, McDonald international expansion strategies are changing the company, and specific strategy require modification, which matches with customer taste and culture.
References
Barnes, D., (2008). Operations management: an international perspective. UK: Cengage Learning EMEA.
Bondy, K., Moon, J., & Matten, D. (2012). An institution of corporate social responsibility (CSR) in multi-national corporations (MNCs): Form and implications. Journal of Business Ethics, 111(2), 281-299.
Charles, H.W.L., Hwang, P., & Kim, C. W. (1990). An eclectic theory of the choice of international entry mode. Strategic Management Journal, 11(2), 117-128.
Claudio, V. (2001). McDonald’s: “think global, act local” – the marketing mix. British Food Journal, 103(2), 97-111.
Colin, F., & Alan, L. (2008). Business Ethics and Values: Individual, Corporate and International Perspectives. 3rd ed. New York: Prentice Hall
Cooper, R.G., & Edgett, S.J. (2009). Product Innovation and Technology Strategy. USA: Stage-Gate International.
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Harris, P. S. (2009). None of us is as good as all of us: how McDonald’s prospers by embracing inclusion and diversity. John Wiley and Sons
Kolk, A. (2015). The Social Responsibility of International Business: From Ethics and the Environment to CSR and Sustainable Development. Journal of World Business, 51(1), 2016.
McDonald’s Corporation USA. (2010). About McDonald’s. Retrieved from https://www.aboutmcdonalds.com
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Pride, W.M. & Ferrell, O. C. (2008). Foundations of Marketing. 3rd ed. USA: Cengage Learning
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Galanakis, C. M. (2016). Innovation Strategies in the Food Industry: Tools for Implementation. Academic Press
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