EXECUTIVE SUMMARY McDonald’s India was incorporated as a wholly owned subsidiary – McDonalds India Pvt Ltd (MIPL) in 1993. In April 1995, the wholly owned subsidiary entered into two 50:50 joint ventures. The first with Connaught Plaza Restaurants (Mr Vikram Bakshi) to own and operate the Delhi restaurants, and Hardcastle Restaurants (Mr Amit Jatia) to own and operate the Mumbai outlets. This marked the beginning of an incredible era in the international McDonalds timeline.
It was the beginning of remarkable growth, lengthy product adaptations, and the entry into a market that was so culturally diverse many saw the venture as unrealistic and essentially a waste of time.
This report entails the lengths at which McDonalds had to adapt and connect with the local populations. A brief history is supplied about the company and the nation in question. An analysis of the strengths, weakness, opportunities, and threats is provided and an insight into the most important of all external and internal factors.
Major cultural issues and distinctive sociological features are presented throughout the report, along with an insight into McDonalds India’s continual growth.
TABLE OF CONTENTS 1. 0Introduction……………………………………………………………………………. 4-5 2. 0SWOT analysis 2. 1Strengths…………………………………………………………………………6 2. 2Weaknesses………………………………………………………………………. 6 2. 3Opportunities……………………………………………………………………. 7 2. 4Threats…………………………………………………………………………… 7 2. 5SWOT findings……………………………………………………………. ….. 7-8 3. 0Cultural fit……………………………………………………………………………….. 9 4. 0Cultural issues…………………………………………………………………….. . 9-10 5. 0Progression and Structure……………………………………………………………… 10 6. 0Strategies and Success………………………………………………………………….. 11 7. 0References………………………………………………………………………………. 12 1. 0 INTRODUCTION McDonalds for many years has been the leader in global fast food, franchised outlets. It has set the standard, for quick, reliable and consistent food, worldwide. The company has rapidly expanded and continues to do so. Opening more stores than any other fast food chain over the past 40 years.
McDonalds had entered the Asian market in 1971, beginning with Japan.
It had continued to enter various other countries and regions of Asia for the following 35 years. Year of OpeningCountryRestaurants in 1997Restaurants in 2002 1971Japan24373891 1975Hong Kong140216 1979Singapore105130 1980Philippines157236 1981Malaysia110149 1984Taiwan233350 1985Thailand61100 1988South Korea114357 1991Indonesia103105 1992China ( Beijing)184546 1996India946 1998Pakistan020 1998Sri Lanka02 Source: McDonalds Corporation 2002 Annual Report. India was always considered a sleeping giant to many western multinationals. It had continued to expand and slowly open its markets, and doors to trade from western nations.
India’s population soared through the 1960’s to 1990’s, yet was still an incredibly difficult market to enter, primarily for cultural reasons. source: BBC News, India’s Population India is possibly the most diversified nation on the face of the planet. It is home to more that 1. 18 billion people, 17. 31% of the worlds population. India is home to more than two thousand ethnic groups, and every major religion is represented. McDonald’s first entered the India market in October 1996, since then it has opened a following 168 stores, however there proved many difficult times and obstacles that impended the smooth run of fast food chain. . 0 SWOT ANLYSIS 2. 1 Strengths McDonalds’ sheer size is it biggest strength that creates so many opportunities for the brands alone. In 2003 it operated more than 31,000 restaurants and served than more than 46 million people daily in 118 countries. That same year McDonalds had attained US$41. 5 billion in sales, another point of strength. McDonalds also managed to show US$2. 1 billion in operating profits, and had US$24 billion worth of assets. These figures indicated the magnitude of strength the company holds, all of which would assist McDonalds venture into the great sub-continent.
McDonalds has always maintained a competitive advantage over many competitors due to their ability to adapt to changes in the environment and movement in consumer circumstances. 2. 2 Weaknesses The late entry of McDonalds into India can be attributed to many things, particularly the level of research and time that went into determining the critical success factors for the market. Along the way various weaknesses were encountered in the potential market. A significant percentage of the population was vegetarian, which impacted heavily on the menu that was found in neighboring Asian nations.
The limited purchasing power of the nation was enhanced due to the closed nature of the economy. Weaknesses in the current set-up of McDonalds were brought to the surface through the social diversity of the nation. There were more than 20 major spoken languages and over 200 different dialects. The Indian currency had its denomination spelt out not only in English and Hindi (the national language), but also in 13 other languages. Approximately 50% of the population was considered to be illiterate, which had negative impacts on marketing and advertising campaigns, which would soon be lead by McDonalds India. 2. 3 Opportunities
What drew so many multinational corporations to India? Incidentally it was the various opportunities that were seen there. It was considered a gold mine for large western organizations. Since the Indian Government began deregulating the economy and opened up its doors to international competition in 1991, a swarm of multinationals had entered. Indian was a vast subcontinent with an area four times smaller than the US and a population four times larger. It was ranked as the fifth largest economy in the world, after adjusting for purchasing power parity, India’s economy exhibited a per capita GDP (2002) of US$2540 and aggregate GDP of US$2. 6 trillion. The “eating out” market was considered to be huge in India, according to one analyst India’s food expenditure amounted to $77 billion in 2000, out of the total world food spending of $4000 billion. (Business Line, 2000) 2. 4 Threats Along with the tremendous opportunities, came many threats, which affected the implementation McDonalds wanted to undertake. The expansive food market that was considered an enormous opportunity was incredibly fragmented, consisting of millions of smaller roadside food stalls and restaurants, known as dhaba, that were located throughout the subcontinent.
For launches of new products or stores, eight languages had to be used, which affected the level of reach advertising campaigns would have, also inflating the cost of set up and promotion. India also had incredibly poor infrastructure, which looked and still looks far off from being improved. Delhi and Bangalore, two of India’s established and advanced cities still suffered total power shortages and blackouts on a regular basis. 2. 5 SWOT findings: 3 Issues that McDonalds should Address The three most significant issues that were found in the SWOT analysis were; he sheer size and strength of McDonalds capital resources and assets, the size of the economy and purchasing power adjusted per capita GDP, and finally the cultural influences and diversity of the nation. The capital and human resources McDonalds employees globally ensures an almost infinite amount of research and development can take place, ensuring a smoother operation and implementation of initiatives in order to enter a new market. The GDP per capita is an excellent indicator of what a potential market can offer.
When the Indian economy began to open its doors to foreign investments in 1991, many companies saw this statistic as a great opportunity, also being lured in by the attraction of a growing middle class, currently somewhere in the proximity of 400 million. Both the two points above outline strong reasons for a successful market, however the most important factor to take into account when entering a foreign market is the underlying cultural differences of the host nation. More so, in India particularly is the incredible diversity of cultures that span across the subcontinent.
This was most probably the most important issue to consider when factoring in an entry into a new market. Many well known multinational brands had failed with their initial strategies and were forced to either reposition products and brands, drastically reduce prices, and in some cases – close up shop (e. g. Peugeot. ) Kellogg’s attempted to enter the Indian market in 1992, and offered cereals that were several more times expensive than traditional breakfasts, and locals were not particularly attracted to their product.
McDonalds had to undergo product adaptation to suit local tastes and cultures in various regions throughout the world, for example, McRice in Indonesia, McPork in Thailand, McSpaghetti with Filipino ham in the Philippines, or McLox Salmon sandwiches in Norway. However, the degree of adaptation was significantly greater in India. McDonald’s core product, the Big Mac, was replaced with the Maharaja Burger, which replaced a beef patty with a mutton patty. In addition, since 40% of the market was considered to be vegetarian, the McAloo burger was introduced with a potato patty.
A special spicy salad sandwich was also introduced, and most condiments, were to be made far spicier than those found in other nations. After two years of operation McDonalds conducted a consumer feedback report, this found that consumers wanted a greater variety, and still found the restaurants to be far too expensive. McDonald’s then introduced several new and cheaper products, including the Veg Pizza McPuff, which became a national best seller. After five years of operation, in 2001, the standard Asian McDonalds menu was found to be 75% localized for the Indian subcontinent.
To further meet local standards, McDonalds assured all consumers and the greater public that all non vegetarian products were being prepared by different staff, in a different facility, using different utensils from that of meat based products. This was also documented on their menu and was found on many advertisements. 3. 0 Cultural Fit for McDonalds in India The Indian culture can be characterized by the diverse population, which sticks to its strict food tradition. India has more than five thousands ethnic communities; each region and sub region in India has distinct food tradition and preference.
It is interesting to note that the Indians used to food prepared at home which is considered healthy and, first of all, cheaper. Due to such distinct dietary habitats and food preference of Indian consumers, until the early 1990’s western food chains had largely ignored Indian market. India’s majority of population is of Hindu religion (80% of India’s population) in which cows are considered to be sacred, and 160 million of Indian Muslim (13. 4 % of India’s population) does not eat pork and beef. Taking this step in mind McDonald’s have developed some vegetarian menu to suits Indian taste and culture.
The result was, respecting for local culture, India is the first country in the world where McDonald’s does not offer any beef or pork. Later, to suits the local customer McDonald’s has to introduce mutton based “Maharaja Mac” in India and they had introduced 14 other items such as McAloo tikki Burger (breaded potato and pea pattie). Approximately 75% of the menu available in India is “Indianized” and specially design for the Indian customer. McDonalds India is recognized as a family restaurant, there is less demand for take-away food in India.
People like to go restaurant and like to finish their meal in restaurant and do not believe in take away. In India there is no drive thru system. Indian McDonald’s are very big compare to other country McDonalds because of recognize as a family restaurant. Festivals also carry a major role in Indian culture, and can often operate in seasons. Indian people typically like to spend more money on eating out and purchasing new products during festival time. To take the advantage on the spending habits of Indian customer, McDonald’s has often sought to launch new product, during Indian festival seasons.
Some of the major and popular religious festivals in India during September and November are Navratri, Dussehra, and Diwali. When even non-vegetarian Hindu turn into vegetarians. 4. 0 Cultural Issues making India more or less attractive to the McDonalds Corporation. The major culture issues faced by McDonalds India were that the people of India were not eating beef and pork, which is the main ingredient of McDonald’s burger. This was a reason for McDonald’s facing many controversies in India. The controversy of McDonald’s fries is that they are not fully vegetarian.
McDonald’s used to put beef extract in fries to make them tastier. This caused Mumbai and Delhi McDonald’s outlets to be targeted by violent protest groups, such as the Hindu militant group, Shiv Sena. Following this protest, the company was sued in America. Later, McDonalds gave a public assurance that it does not contain any animal extract in any vegetarian food in India. Another issue that can be discuss, as a major culture issues is attitude towards foreign food dietary. At world level McDonalds is recognized as junk food. According to Dr.
Vandan Shiva the director of Research Foundation For Science, Technology, and Ecology, junk food chain like McDonalds and KFC destroying ecological balance and cause a severe disorders because of their fatty and unhealthy foods. This food chain is also for the wealthier segment of people not for poor. Which promotes more inequality in the country. Looking at the case what happened to McDonald it clearly represents us that cultural do have an impact on business and industry must study it before entering into the country or region. . 0 Progression and Structure. The development of McDonald’s core competencies within India has continued to evolve with the market expanding and continual changes, primarily of the Indian middle class. The progression of McDonalds India is evident throughout the ongoing improvement in performance and satisfied customers. During its first 12 months of operations (1996), McDonalds opened 7 outlets, 4 in Delhi and 3 in Mumbai, between them they served up 350,000 Maharaja Macs and had 6 million customer visits.
By 1998 the number of outlets had reached 14, by 2000 there were 25 outlets nation wide, and by 2001 there were 46 outlets nation wide. McDonalds ongoing success was further highlighted by KFC’s failed attempt to enter the market in the same year. By mid 2000, 50% of McDonalds’ revenue was derived from the sales of vegetarian only products. This was seen to be a major milestone for the corporation whose critics had often claimed that this would be the demise of the fast food chain in India. 6. 0 Strategies and Success
In light of their success and domestic acceptance, McDonalds underwent several different strategies, firstly increasing its seating capacity in several of its restaurants by adding birthday party areas and expanding general seating areas. “A normal kebab with all the trimmings, at a regular restaurant would cost more than Rs 25 and if the new McGrill is giving us a similar satisfaction with its mint chutney, then we’d rather eat in a lively McDonalds outlet than sitting in a cramped car on the road. ” Local McDonalds Customer: Helped give reason to the increase in seating capacity.
Secondly attempting to open more outlets in less populated cities where there may be demand for McDonalds. These cities generally had lower income per capita levels, and were less densely populated in comparison to Delhi and Mumbai. Therefore they would most likely be less approachable with regards to western food. McDonalds, also underwent a massive movement to open many outlets at all nationwide railway stations, airports, busy highways, petrol stations, malls, multiplexes, cinema halls, and interstate bus terminals. The majority of these investments required lower levels of investment per outlet due to the nature of the surroundings.
The continual growth did see many positives for McDonalds India, however the rapid expansion meant that the bottom line would in fact be affected over the following years. There was no doubt the return on investment would be of a significant profit, yet there was an opportunity that arose within the growth of the market and McDonalds had to take advantage. The result was simply a delay in the returns, however McDonalds India has continued to flourish and is now home to 160 restaurants across the country, employing more than 4000 people. (McDonalds India, 2008) . 0 References BBC News, India’s Population, http://news. bbc. co. uk/2/hi/3575994. stm Long way for India to go on the retail front, Business Line, December 6, 2000 McDonalds Corporation 2002 Annual Report, www. mcdonalds. com/investors McDonalds India, 2008: www. mcdonaldsindia. com/McDonaldsinIndia. pdf The Golden Arches in India: A Case of Strategic Adaptation, Dr Amit Rangnekar The Golden Arches in India: A Case of Strategic Adaptation, Dr Saroja Subrahmanyan Various financial reports, facts and findings, http://www. mcdonalds. com