Read the following case study carefully and answer the questions that follow.
McDonald’s in India: No Hamburgers Please!
(Source: McDonald’s sells hamburgers. https://thelib.info/tehnologii/3089124-mcdonald-s-sells- hamburgers/)
In 1954, a milkshake mixer salesman named Ray Kroc traveled to San Bernardino, California, to see why one restaurant had ordered so many of his Multimixers. The McDonald brothers had invented a new concept in the restaurant business and Kroc wanted to see for himself why the business was so popular. Dick and Mac McDonald had pioneered fast food based on high volume, low prices, limited menu, and quick service. The restaurant was a success, and Ray Kroc wanted it. He negotiated an agreement with the McDonald brothers in which he would become the exclusive franchiser of the McDonald name.
In 1955, the first McDonald’s franchise opened in Des Plaines, Illinois. The McDonald’s empire would be based on four core values providing customers with quality, service, cleanliness, and value (QSCV). Kroc believed that consistency in these core values would allow McDonald’s to build a strong brand image throughout the United States. He was right. The concept was a success, and by 1963 McDonald’s was selling 1 million hamburgers a day.
The first international McDonald’s opened in Canada in 1967. McDonald’s continued its international expansion into Japan, Germany, Australia, France, and England in the 1970s. Additional outlets were established in Latin America, the Middle East, Central and Eastern Europe, Russia, and China. The motive for McDonald’s international expansion was the realization that most potential sales existed outside the United States. As Kroc had said in 1954, when he witnessed the McDonald brothers’ original restaurant concept, “This idea can sell anywhere.” Based on the need for additional sales growth and the belief that the concept could be exported, McDonald’s embarked on an aggressive international expansion effort beginning in the 1970s. Today, McDonald’s has restaurants in 119 countries and derives over 60 percent of its profits from sales overseas. On average, the company opens a new restaurant somewhere in the world every five hours, and McDonald’s can be found on every continent, except Antarctica.
Prior to 1996, McDonald’s did not have a restaurant anywhere on the Indian subcontinent. With a population of over 1 billion, India is viewed by many as a market with an enormous potential. India’s population is second only to that of China, and, with differing birth rates, India will become the most populated country in the world by 2020, according to some estimates.
India represented a big challenge to McDonald’s because most Indians could not eat the main menu item: the beef hamburger. Over 80 percent of the Indian population is Hindu and this religion prohibits the consumption of cow products. Also, approximately 40 percent of Indians are strict vegetarians and eat no meat of any kind. A significant percentage of the Indian population is Muslim, which also prohibits the consumption of pork products.
India is a federal republic, which gained its independence from Great Britain in 1947. After many years of British rule, Mahatma Gandhi led a mass movement for independence. Since that time, India has been as its constitution states, a “sovereign, socialist, secular, democratic republic.” The economic self-reliance or “swadeshi” begun under Gandhi influenced public policy in India for over 40 years. India finally began to liberalize economic policy after experiencing a severe foreign currency crisis. In 1991, major changes occurred that made foreign investment easier, including reduced tariffs, removal of non-tariff barriers to trade, and loosened foreign investment restrictions and currency controls.
India still remains a poor country and a difficult market for Western companies. Per capita GDP is $1,498, and many Indians live on less than a dollar a day. Yet, the economy with a high growth rate in recent years has raised many out of poverty and produced widespread income gains. The government recognizes eighteen languages, with Hindi being the most widely spoken. English is also spoken, especially in urban areas and among the better-educated component of the population. Violent religious clashes occur between Hindus and Christians and between Hindus and Muslims, and there is a current movement to establish an all-Hindu India. The religious and social class tolerances advocated by Gandhi do not seem to be as well accepted by many in India today. India is a country divided by languages, religion, and caste.
In 1996, McDonald’s opened its first restaurant in India. The first McDonald’s in India was located in Delhi and was the only McDonald’s outlet worldwide not to offer beef on its menu. Due to dietary restrictions imposed by religion, McDonald’s had to be creative in its product offerings. Without the possibility of serving beef or pork, McDonald’s offered the lamb patty and a veggie burger. The Big Mac was named the Maharaja Mac and substituted ground lamb for beef. After opening its second restaurant in India, this one in Mumbai, McDonald’s had invested $14 million, yet the company was not completely sure of the potential of the Indian market. Although business was brisk at both locations, some concerns were raised.
Some consumers complained about the bland taste of the food. Accustomed to the spicy traditional Indian food, McDonald’s meals seemed too plain for some consumers. There was also a concern about the political stability of the country and long-term acceptance of McDonald’s in India. The Indian government did not support the entry of McDonald’s into the country and some Indians protested the arrival of the American multinational. Previous American franchises have been the target of vandalism in India in the past. KFC, Dominos Pizza, and Pizza Hut all have several locations in India, and some of the restaurants have experienced difficulties with political mobs. McDonald’s is perhaps in an even more vulnerable position because its primary product worldwide (beef) is viewed by many Hindus as not appropriate for consumption. As one protestor remarked “They are the chief killers of the cow.” Other protestors see McDonald’s as a symbol of the exploitation of the world’s poor by rich American multinationals. In 2005, McDonald’s settled a $10 million lawsuit. brought by vegetarians in the United States who had charged McDonald’s with misleading advertising. McDonald’s had been using a beef flavoring for its French fries without telling consumers. The news of this culinary process caused protest in India and some store vandalism, however, McDonald’s had been careful not to use the beef flavoring in India.
McDonald’s of India is a 50/50 partnership between the McDonald’s Corp. and two Indian businessmen, who have divided the market into North and East, and West and South markets of India. McDonald’s faces stiff competition from Yum! Brands Inc., which operates KFC, Pizza Hut, and Taco Bell. Yum has the advantage of having its product offerings more consistent with the requirements of a Hindi diet. At present there more than 250 McDonald’s restaurants in India and there is a plan to double that number by 2020. McDonald’s of India continues to experiment with different product offering to satisfy local tastes and preferences and has developed a McDonald’s delivery phone app to bring meals to consumers.
Faced with the difficulties of product acceptance, low purchasing power among consumers, and the ever-present potential of political conflict, McDonald’s, nevertheless, hopes to grow this emerging market in the coming decades. With a large and growing population, and increasing incomes, McDonald’s feels that Indians will embrace the product offerings and make India a very good growth market for the company
What are the approaches available to McDonalds that allow them to use international markets and locations competitively?
Discuss the approach of internationalization to India that McDonalds is following.
Discuss the cultural, economic and political barriers that McDonalds faced in India. What could senior managers do before and after mergers to alleviate these barriers?
Using the FSA – CSA Matrix, explain the relative strengths and weaknesses of the CSAs and FSAs that McDonalds possess.
What lessons can be learned by other MNEs from McDonald’s experience in India?