Case II Marketing McDonald's: is China Lovin it

1. What are the general environmental forces that could influence or have influenced McDonald's development in China? a. Demographic Environment There was massive urbanization in China, captured in graphic bellow: (Opportunities)
Urban Population Percentage
Population percentage 40% 38% 36% 34% 32% 30% 2000 2001 2002 2003 Year 2004 2005 2006 Rural population (in percentage) Urban population (in percentage)

In China there was significant economic growth, which reflected from per capita annual income growth. (opportunities)
Per Capita Annual Income of Urban and Rural Households in China (Year 1980-2005)
1600 1400 1200 1000 800 600 400 200 0 Per Capita Annual Income (in US$) Per Capita Annual Disposable Income of Urban Households (in US$) Per Capita Annual Net Income of Rural Households (in US$) 1980 1985 1990 1995 2000 2005

Year

Affluence people in China was increasing (opportunities) In Chinas there was rapidly growing middle class (opportunities) In China there are many lower income consumers that could not afford at Western fast food chains, which charge $3 for a basic meal. (threat) b. Sociocultural Environment Chinese customers are eager to try out burgers and fries, which were vastly different from local Chinese quick service restaurants. (Opportunities) Big curiosity of Chinese about foreign brands and their-in-store experience that enable Western fast food and restaurant companies to set relatively high price for their food (Opportunities) Chinese food tradition. Chinese meal, dishes were served on communal plates, which were placed at the center of a table for everyone to share. That different from what McDonalds offers as western food, which serve on individual serving. (threat) Chinas rapidly growing middle class was also demanding higher standards. (Opportunities) Fast food is already known in China, such as noodle and dumpling stalls. (Opportunities)

By:

G122 Ray Tiran, Siska Amonalisa, Rachmat Adi Sampurno, Vivi Agustin, Fransiskus Sitepu

In the late 1980s and early 1990s the emerge of Western fast-food chains had change restaurant landscape in China through the different experience they offered to Chinese consumers: efficient self-service (threat), Standardized servings, less reliance on eating utensils, a clean environment and a comfortable atmosphere. (Opportunities) Young Chinese customers had a different view about Western restaurant: they dont mind paying more expensive food to enjoy and socialize with friend and relax. (Opportunities) Breakfast market in China: 80% of Chinese consumers are eating breakfast, among which 68% ate breakfast away from home. (Opportunities) Chinese consumers have a preference tea then coffee. (Threat) Social critic about health improvement and environmental standard in China: Mc Donalds doesnt do the same campaign about health and environment as they do in US. (threat) McDonalds in developing nations had been targeted by anti Americans Activist. (threat) American News Anchor Brian Sulivan said that McDonald should respect US since McDonald was American Company as a impact of tag Im Lovin it when China win (threat) While the booming economy of China offered the environmental conditions corresponding to fastfood culture, the environment also posed challenges to McDonalds. The prevalence of McDonalds restaurants in China seemed suggests the Chinese were lovin it. (opportunity) In 1987-1990, the KFC, McDonald, Pizza Hut have a service that comparable to high class Chinese Restaurant. Many Chinese in those early considered dining at KFC, McDonalds or Pizza Hut as Luxury. (opportunities) There were cases in china of other franchises signing on as partners just to learn trade secrets and recipes and then open their own stores under different names. (threat) Malan Noodles emphasizing the nutritional values of its noodles and ingredients that it used, it also promotes wide selection of Chinese dishes to customers, unlike western fast food, which lack variety. (threat) McDonalds rival, KFC, was the first foreign company to bring the concept of fast food to the country in 1987 (threat)

c. Economic Environment The competitive environment was also intensifying as local a foreign restaurant sought to capitalize on Chinas increasing affluence people. (threat) There were powerful Chinese partners who willing to have a joint venture relationship with Mc Donald as a foreign company. (opportunities) In April 2007 there was raising inflation in China. (threat) Companies that originated in Asia and which were familiar with both Chinese tastes and Western management styles also emerged in China during the Economic Reform. (threat) new entries

By:

G122 Ray Tiran, Siska Amonalisa, Rachmat Adi Sampurno, Vivi Agustin, Fransiskus Sitepu

Many home grown fast-food chains, which offered more Chinese and lower prices than foreign counterpart. (threat) existing competitors Local Chinese chains mostly concentrated their business in urban cities in specific regions and offered food delivery services (threat) KFCs first outlet in Beijing was in three-storey building of 1,100 square meters, making it the worlds largest KFC by floor space. (Threat) existing competitor

d. Regulatory Environment McDonalds was entered China in 1990, where China not yet have Franchise Law. In 1997 China enacted its Franchise Regulations which applied only to domestic franchiser; just in 2004 China has created legal structure for foreign franchiser as part of China commitments to WTO. (opportunities) Newspaper revealed McDonald and Yum Brands had underpaid their part time employees in Guangzhou. (threat) As a foreign fast food companies sprang up quickly during the 1990s, the Chinese government expected the fast-food sector to grow rapidly in the country and contributed significantly to restaurant industry. (opportunities) e. Technological Environment Many of China Chains failed because they failed to develop system like those of foreign chains (threat) Lihua fast food operated without storefronts but owned a well-equipped kitchen with a skilful kitchen crew (threat) Lihua used computers to facilitate inefficient food ordering and tracking system and utilized the GPS to aid food delivery. (threat) Lihua fast food was the 1st fast food company in China to use environmentally friendly packaging and implement the ISO 4001 environmental management system (threat)

f. Natural Environment China have natural resources that can fulfill 95% of material needs by Mc Donalds (egg. beef , potatoes, milk, and vegetable) (opportunities) 2. What are the opportunities and threats presented to McDonald's operations in China? Opportunities presented to McDonalds operation in China Marketing opportunities is an area of buyer need and interest that a company has a high probability of profitability satisfying based on Marketing Management by Kotler, Keller 14ed. Massive urbanization in China Affluence people in China was increasing & there was rapidly growing middle class Chinese customers are eager to try out burgers and fries Big curiosity of Chinese about foreign brands and their-in-store experience Fast food is already known in China, such as noodle and dumpling stalls

By:

G122 Ray Tiran, Siska Amonalisa, Rachmat Adi Sampurno, Vivi Agustin, Fransiskus Sitepu

 As a foreign fast food companies sprang up quickly during the 1990s, the Chinese government expected the fast-food sector to grow rapidly in the country and contributed significantly to restaurant industry. Many of China Chains failed because they failed to develop system like those of foreign chains China have natural resources that can fulfill 95% of material needs by Mc Donalds (e.g. beef , potatoes, milk, and vegetable) Threats presented to McDonalds operation in China Environmental threat is a challenge posed by unfavorable trend or development that, in the absence of defensive marketing action, would lead to lower sales and profit.
A lot of number competitor Uniqueness product of each competitors Low customer loyalty No switching cost

Threat of new enterence

e Mod
Bargaining power of Suppliers State owned General Corporation of Beijing Agriculture, Local Farmer Rivalry among existing competitors

rate

Moderate time and cost entry Moderate economic of scale Many new local entrance failed to develop system Low barriers to entry

Bargaining power of buyers

Low

High
Threat of substitute product

High
Free market Small size order There were difference offering from its competitor High price sensitivity Low cost of changing

Already have a join venture with State owned General Corporation of Beijing Agriculture Develop a network with farmer, food processing manufacture and other suppliers Good substitute performance Low cost of change

High

3. What are the strategic groups in the fast-food industry in China? In which strategic group does McDonald's China compete most? Based on Michael Porter theories, Strategic group is firms directing the same strategy directed to the same target market. Different restaurant landscape Focus on brand quality Focus on management control Efficient self-service Ability to adapt quickly to local condition Standardized serving Has well-known and strong name and Less reliance on eating utensil trademark A clean environment Vast Capital Comfortable atmosphere
By:

G122 Ray Tiran, Siska Amonalisa, Rachmat Adi Sampurno, Vivi Agustin, Fransiskus Sitepu

 Expert in technology

Adapt its menu to China preference chicken over beef Well develop its internal supply network. Strong partnership through local company, e.g. McDonald with Taobao.com for online shop and Sinopecs for drive through in 30,000 petrol stations. Have home delivery service Open hour to 24 hours per day Price discrimination Promoting western menu in China
*the bold one is the strategy that McDonalds China most compete

By:

G122 Ray Tiran, Siska Amonalisa, Rachmat Adi Sampurno, Vivi Agustin, Fransiskus Sitepu