Management Strategies On Mcdonald's Corporation

Assignment

Report of case study on Management Strategies

of

McDonald's Corporation

Jun 2006

Table of Content

INTRODUCTION 1

ORGANIZATIONAL BACKGROUND 1

LOW THREAT OF ENTRY 2

Economies of scale, Learning Curve and Experience Curve 2

Brand differentiation 3

Cost and technology advantage 3

Access to distribution channels 4

HIGH THREATS FROM SUBSTITUTES 4

Price and quality 4

Better performance/service 5

Different industry(Similar product) 5

HIGH THREATS FROM THE BARGAINING POWER OF BUYERS/CUSTOMERS 6

Forcing down prices 6

Customers’ wants and needs 7

Healthy life style 7

Fast-and-Convenient Service 7

LOW THREATS FROM THE BARGAINING POWER OF SUPPLIERS 8

Forward integration 8

LOW RIVALRY AND COMPETITION AMONG COMPETITORS 8

Competitors 8

Industry growth 9

Product/Service 9

HIGH THREATS FROM STAKEHOLDERS 9

Local Communities 10

Social Welfare 10

Interest Groups and Suppliers: Environmental protection 10

RECOMMENDATION 11

CONCLUSION 12

REFERENCES 13

APPENDIX 14

Introduction

This report is to study McDonald's Corporation using Michael Porter's Analysis on strategies used to deal with the competitive environment.

Organizational Background

McDonald’s restaurant established in Illinois in 1955, more than 30,000 restaurants in 119 countries worldwide, serving 47 million customers per day. In December 2005 reached a record high of more than US$20 billion revenue and 398,000 employees. McDonald's is the largest quick service restaurant organization in the world1.

This report uses the Five Forces Model from Michael Porter to analyze McDonald’s Corporation Ltd.

Source: Michael Porter Five Forces Model, www.brs-inc.com/porter.asp

This model studies the relationship between competitors within the same industry, such as potential competitors, suppliers, and buyers. Give alternative solutions to enable the management to develop an appropriate strategy.

Five forces analysis looks at five key areas namely “The threat of entry”, “The threat of substitutes”, “The power of buyers”, “The power of suppliers”, and “Competitive rivalry”.

McDonald’s is a multi-national corporation; they are big in size with broad target markets. McDonald’s belongs to “stuck in the middle” case, with no competitive. McDonald’s mainly uses analyzer type of strategy, combination of competitive strategies used, such as: cost leadership, differentiation, diversification, and backward integration. They also use growth strategies in corporate level like, concentration, backward integration and diversification strategies used. Those strategies used to against competitive environment will be illustrated in following sections.

Low Threat of Entry

Economies of scale, Learning Curve and Experience Curve

As new entrants may bring new capacity to the industry, a desire to gain market share and substantial resources, these may bring threat to an existed company. New entrants need to spend huge costs in purchasing and setting up machinery for running production, huge costs in advertising and R&D. With McDonald’s 52 years of well-found learning curve, new entrants have less advantage in handling costs spent. For the hamburger fast-food industry, a new comers’ experience curve is low which would refers to high systematic unit cost.

McDonald’s is using Cost Leadership strategy to against new entrants, high volume of sales, and fixed costs over a large volume of output, which reduces unit costs of products, that makes the new entrants a hard barrier from entry. McDonald’s has the advantages in handling costs spent; to new entrant is a cost disadvantage. McDonald’s has minimized the unit costs by dividing the production process into small parts, which can decrease assembly time, increase product volume and increase productivities of employee.

Brand differentiation

New entrant can enter the industry by differentiating a wider product line as McDonald’s focused on the major product line on hamburger. McDonald’s Corporation has developed strong, confidence and high customer loyalty branding for their product of hamburgers.

McDonald’s uses Differentiation strategy to create the image of hamburger. McDonald’s has shown great effort in advertising and marketing on their existing products. In which, the new entrants may form fallback decision even if they could sell similar product but might suffer from high cost in penetrating in the industry.

Cost and technology advantage

Low price of the product serve as a barrier to new entrant as new entrants may not be able to match the cost advantages of McDonald’s. New entrants may suffer from capital insufficiency and disadvantages in experience, technology and unknown factors