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Pro jec t on

I n te rna t i ona l Marke t ing St ra tegy o f a


Company
Company Selected:
McDonald
Strategy for Entering:
Eastern Europe (Estonia)

Submitted by
Rehan Yousaf

Department of Administrative Sciences

Quaid-i-Azam University, Islamabad


MC Donald’s entry in Eastern Europe
(Estonia)
McDonald
Company Background

R ay Kroc, at 52 years old, invested his entire life savings to become the exclusive
distributor of a milk shake maker called the Multimixer. Hearing about the McDonald's
hamburger stand in California owned by Dick & Mac McDonald running eight Multimixers at a
time, he packed up his car and headed West. It was 1954. Ray Kroc had never seen so many
people served so quickly. He pitched the idea of opening up several restaurants to the
McDonald brothers, convinced that he could sell eight of his Multimixers to each and every one.
"Who could we get to open them for us?" Dick McDonald said. Well," Kroc answered, "what
about me?"

Ray Kroc opened the Des Plaines, Illinois restaurant in 1955 and never looked back. In
1965 McDonald's went public with the company's first offering on the stock exchange. In 1967,
the first McDonald's restaurant outside the United States opened in Richmond, British
Columbia. In 1968, the Big Mac® sandwich was introduced, followed by the Egg McMuffin®
breakfast sandwich in 1973. Milestones and accomplishments have followed ever since.

Today, there are tens of thousands of McDonald's restaurants serving millions of people
daily around the world. The incredible growth and success of McDonald's can be summed up
with the first thought that went through Ray Kroc's mind when he first saw McDonald's: "This will
go anyplace."
McDonalds celebrated its 53rd anniversary in April 15, 2008 and remained true to the
statement "As far as I can tell, the only place you can't get a Big Mac is in outer space." The
company operates as a global business through franchising. In 2004, the company reported to
have established 30,000 local restaurants located in 115 countries across five continents. It is
the biggest fast food retailer conquering markets worldwide. In almost every country, there is a
McDonalds restaurant and in a single state or region, there are several branches. The company
has spread so widely that the term “mcdonaldization”, was coined to describe the organization
and culture of the company. The term has evolved to refer to the general business strategy of
expansion.

Vision
McDonald’s vision is to be Estonia's "best" quick service restaurant, experience
supported by a set of core values and guiding principles.

Values and Principles of McDonald’s

The core values McDonald live by

• Dedication to provide customers unparalleled levels of Quality, Service, Cleanliness and


Value.

• Commitment with the people, because it knows that a diverse team of well-trained
individuals, working together, is the key to its continued success.

• To approach all aspects of business with honesty and integrity.

• It backs to the system that provides success.

• Celebrating the achievements, yet we always strive to achieve new heights.

The principles that guide McDonald

• Commitment to exceed the customers' expectations in every restaurant every time.

• McDonald believes its success is dependent upon our three-legged stool - Corporate,
Franchisee Partners, and Supplier Partners.

• McDonald is committed to franchising, maintaining a highly collaborative relationship


with its franchisees and making franchising decisions based on what's best for its
customers.
McDonald’s mode of entry in foreign Market and
Expansion Strategy
McDonalds enter in the foreign market through direct selling its product in its private
outlets. It may be called as a specialty product producer. Product being produced, sold, &
promoted by its own self. This mode of entry requires McDonalds to have deep study of the
market in which it is planning to go.

McDonalds expands its operations through franchising. Franchising is a hybrid manner


of expanding and organizing the business by establishing a relationship of agency with the
franchisees. Franchising involves the convergence of a parent company and several small
businesses. The parent company sells to the smaller businesses the right to distribute its
products or use its trade name and processes. A contract governs the agency relationship
established between the parent company and the franchisees. The franchise contract defines
the conditions of the agency and the duration of the relationship.

Company Management and Marketing Strategies


Organizational culture is the concept that guides the operations of McDonalds.
McDonalds operates according to four values: quality, service, convenience and value.
Organizational culture is part of the knowledge and information transmitted by McDonalds to the
franchisees in other countries. Part of organizational culture is the delivery of uniform quality of
food and service wherever the branch is located. The good reputation of the company and the
expectation of an excellent service no matter which branch people eat is a marketing strategy of
McDonalds. McDonalds sets a standard applicable to all its branches worldwide. However, the
company also gives leeway for innovation by allowing the branches to integrate culture into food
and service increasing market share.

Eastern European Market Background


Eastern Europe constitutes an emerging market for most businesses. The collapse of
socialism in the region in 1989 facilitated the move of countries in the region to prepare for
participation in the capitalist market. In 1999, most Eastern European countries were working to
meet the requirements for membership in the European Community. In 2004, Czech Republic,
Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia became members of the
European Union.

Membership of a number of Eastern European states in the EU prompted the flow of


foreign investments into the region, increasing household income, increasing consumption and
spending, because of cheaper labor compared to wages in Western Europe. There was a
general trend towards the improvement of the standard of living of citizens of Eastern European
countries. However, in the last two years, most Eastern European countries experienced slowed
growth due to the increase in the wages of workers that discouraged investments. Nonetheless,
wages are still more competitive in Eastern Europe compared to other regions in Europe. Most
Eastern European countries are still in the process of completing their transformation from a
controlled to a capitalist economy. Full transition and the stability of the political and economic
institutions are expected to boost economic development in these countries.
Business expansion into Eastern Europe offers potential profit and minimization of cost
on labor and raw materials. Expansion into Eastern Europe offers mutual benefit to the country
and to the foreign business by providing investments and technology to the country and cost-
effective operations and profit to foreign business firms.

Attractiveness of Eastern Europe as New Market for


McDonalds
Assessing the potential of a new market for expansion requires the consideration of
several factors providing a comprehensive background of the environment that the expanding
business firm expect to enter into.

Gross Domestic Product is the common measure used to determine the economic
condition of a country. GDP has several components, which are consumption, investment,
government consumption, exports and imports. However, the most significant indicator of the
movement of the market is consumption.

In terms of consumption, there is a high volatility of consumption relative to emerging


countries and industrial states. Although UK holds a high consumption volatility of 1.15 among
the G7 countries, the consumption volatility rate in Lithuania and Poland is 1.05, in Russia it is
1.03 and in Slovenia it is 0.71. Consumption volatility is attributed to either the rapid income
growth resulting to a changing consumer behavior, or liquidity constraints especially in
economies with an underdeveloped financial system, or consumers are not assured of a
constant source of income that increases the tendency to save instead of increasing
consumption.

The stabilization of the political and economic institutions of Eastern


European states provides an environment conducive to economic activities and foreign
investments. In choosing a country in Eastern Europe to invest in, the state with the stable
political and financial institutions should be chosen so that consumption is constantly increasing
and the potential for profitability is higher. There is also lesser risk in entering a stable economy.

Apart from GDP, the characteristics of the labor market also influence the viability of
entering a new market. The general trend in employment in European countries also indicates
high volatility particularly in Bulgaria with a high absolute volatility relative to Czech Republic
and Slovenia with lower volatility. The nature of employment in most Eastern European
countries is spread similarly across industries similar to G7 members with the exception of
Estonia and Czech Republic with exclusive industrial employment. Consequently, there is also a
general trend of wage volatility especially in Russia and Hungary. However, there is an
observed persistence in real wages in most countries except Estonia. There is no common
trend in productivity. The volatility of productivity is low in Hungary, Czech Republic, Poland and
Slovakia and high in Estonia, Bulgaria and Romania.

Employment and wage volatility are important factors in deciding to enter a new
market because minimal employment and wage volatility translates to regular income for
households influencing the stability of consumption resulting to sales and revenue for business
firms. The economic condition of the state affects the financial condition of consumers and their
ability to purchase the goods and services offered by entering business firms.
Although there is a general trend for consumption, employment and wage volatility among
European countries, introducing McDonalds into the region is viable for following reasons:

First, McDonalds will develop a market by providing technological, management and


marketing expertise to local entrepreneurs enabling them to establish a known
restaurant in different areas that creates jobs translating into income to households due
to the hiring of local employees and the purchasing of raw materials from the local
farmers and businesses.

Second, McDonalds incurs less risk, relative to other industries, because food and
drinks is a necessity and if the company can offer an affordable, alternative source of
food then it can gain a significant portion of the market.

Third, McDonalds expects continues growth in the long run, although fluctuating, in
Eastern European countries due to the development and opening of investment
opportunities drawing the continuing flow of foreign investments positively affecting
employment and income.

Fourth, there are relatively less multinational restaurants in Eastern Europe giving the
establishment of McDonalds in the region a competitive edge in terms of consumer
share and market leadership.

Fifth, the consumption culture in Eastern Europe is changing due to its involvement in
international trade introducing the Eastern Europeans to the fast food culture. The entry
of McDonalds in Eastern Europe is timely.

Estonian Market
Country Background:
Estonia is a democratic parliamentary republic and is divided into fifteen counties. The capital
and largest city is Tallinn. With a population of only 1.4 million, it is one of the least-populous
members of the European Union. Estonia was a member of the League of Nations from 22
September 1921,[7] has been a member of the United Nations since 17 September 1991,[8] of
the European Union since 1 May 2004[9] and of NATO since 29 March 2004.[10] Estonia has
also signed the Kyoto protocol

Economy
As a member of the European Union, Estonia's economy is rated as high income by the World
Bank. The Estonian economy Estonian economic miracle has often been described as the Baltic
Tiger. Trade focused on the local market and the West, particularly Germany and the United
Kingdom. Only 3% of all commerce was with the USSR. Before the Second World War Estonia
was mainly an agriculture country whose products such as butter, milk and cheese was widely
known on the western European markets.
GDP growth in Estonia

Political Conditions:
Estonia exudes political and economic stability relative to other Eastern European
countries. In the spring of 2003, the country held its parliamentary elections resulting to the
victory of the conservative coalition. Prime Minister Parts’ direction is towards the continuation of
reform policies. Estonia became a member of the European Union in May 2004. The country is
experiencing robust economic growth attributed to investments and private consumption. The
expected average growth in succeeding years is 5 to 6 percent. The government also applies
sound fiscal policy resulting to substantial budget surpluses. The country also has a stable
banking sector led by Scandinavian banks. Estonian economy is dominated by the service
sector with a 65 percent GDP share, followed by transport and communications with 16 percent
and then by the distributive trades with 14 percent.

Labor and Wages


Estonia has a labor force that reached high levels of education. Wages are low but this is
steadily increasing due to increasing economic activities demanding more labor. Workforce is
also capable of speaking English, German and Russian apart from the official language of
Estonian. Based on 2003 estimates, the national average per hour cost of labor is 3.87 euro in
the service and industry sectors. This is lower when compared to EU average per hour rate of
19.65 euro. On the average, the monthly gross income is 441 euro when compared 2,396 euro
average monthly wage in EU.

Ethnic and cultural diversity


Tolerance and democracy are illustrated by the Law on the Cultural Autonomy for National
Minorities, passed already in 1925, which was not only the first in Europe at the time but also
very progressive. Prior to World War II, Estonia was a relatively homogeneous society – ethnic
Estonians constituted 88% of the population, with national minorities constituting the remaining
12%.[124] The largest minority groups in 1934 were Russians, Germans, Swedes, Latvians,
Jews, Poles, Finns and Ingrians. Cultural autonomies could be granted to minorities numbering
more than 3,000 people with longstanding ties to the Republic of Estonia. Prior to the Soviet
occupation, the Germans and Jewish minorities managed to elect a cultural council
Business Plan for McDonalds Expansion into
Estonia
I. Obtaining Franchising Requests from Estonia
McDonald is Entering in Estonia by giving franchising right to the local people. This will safe
their cost of market research for the consumer taste and needs.

II. Entry into the Estonian Food & Beverage Industry


Entry into the food and beverage industry in Estonia involves the establishment of links with
local networks or partners in the supply chain. McDonalds assessed the ability of
owners/operators to find a good location and establish valuable links with local suppliers for the
building of the physical structure of the restaurant, food supplies and workforce sources. This is
important because McDonalds applies strict standards in these aspects that should be followed
if the company is to impart the company culture to the new owner/operator. Communication with
the owners/operators is important in the transfer of the design, processes, technological
abilities, management expertise and marketing strategies to the McDonalds franchisees. Prior to
the opening of the restaurant, the physical structure should have been built, the crew trained, a
manager designated and suppliers are contacted and arrangements are made.

III. Market Segmentation and Product Positioning


There is little market segmentation because McDonalds target households in general.
Although at the beginning, there may be an initial segmentation with the middle and upper
income classes composing majority of its market, the company expects to reach out to lower
income brackets as Estonia’s economy continuous to grow, employment and income increases
resulting to higher ability to pay together with the change in food culture as more people are
exposed to American food and the fast food culture.

McDonalds will introduce the restaurant as a viable alternative to local restaurants because it
offers a different culinary environment targeting the Estonian family culture and to local food
since McDonalds offers American food. However, McDonalds will also encourage the
operators/owners to design innovative ways of integrating Estonian values and culture into the
food, service delivery, marketing and management of the restaurants to attract customers.

IV. Competition
McDonalds does not have a major competitor in Estonia because of the relatively less number
of foreign, non-European restaurants in the country. Competition comes from established local
restaurants. McDonalds carries the competitive advantage of management and marketing
expertise coupled with knowledge of the local market through the owners/operators. However, a
possible competitive weakness is the views of the Estonians towards the United States since
McDonalds is an American business and towards the company as an international business
firm. Negative perceptions should be addressed.
V. Marketing
1. Product
McDonald’s products are standard in all franchises. However, the company adjusts to culinary
differences in various cultures. In the case of India, McDonalds offered vegetarian burgers to
practicing Buddhists. Asian countries preferring spicy taste saw the introduction of spicy
burgers, chicken and seasoning. This provides options for customers to purchase food with
either the American taste or the local taste. McDonalds achieves balance by maintaining
standardization in products but adjusting to the local taste.

2. Price
McDonalds prices differ in difference franchises since product price depends upon the expenses
and costs in the locality. However, McDonalds determines price by ensuring the profitability of
the restaurant while considering affordability to customers. Owners/operators should be trained
to be cost-effective in their expenditures. Balance between profitability and affordability is
achieved through the company’s pricing policy based on actual expenses and the receiving
value for value given. This means that people are willing to pay a certain price when the
company delivers and equivalent quality food and service.

3. Placing\Distribution
McDonalds distribution channels in exclusive to its franchise restaurants. The way of increasing
its channels of distribution is by obtaining several franchise requests in Estonia. Population,
income and industrialization trends influence the decision to increase franchises.

4. Promotion
McDonalds promotions are made internationally by the mother company and locally by the
owners/operators through advertisements espousing company values and promotions such as
taste-tests, discounting and frequency cards.

McDonald's Advertising

McDonald's original advertising symbol was a winking little fellow named "Speedee", designed
to promote McDonald's fast service. In the 50s and early 60s, McDonald's drive-in restaurants
were easily identified by their red and white tile buildings, which were capped with a slanted roof
and framed on either end by a single golden, neon arch. Restaurants began to use the
advertising theme, "Look for the Golden Arches" and in 1961, the "Speedee" symbol was
replaced by a new logo - an "M" slashed with a line, symbolizing the neon arches and restaurant
roofline. The arches, updated over the years, remain the advertising symbol for the company
and are now one of the most recognized icons in the world.
VI. Operations
Customer Oriented
Product and service delivery of McDonalds is customer centered. This means that McDonalds’
primary concern is the satisfaction of its customers. This is ensured by applying a strict standard
of food and service quality.

Under direct Supervision of Mother Company


Periodically, representatives from the mother company visit certain branches in order to ensure
the maintenance of quality standards, to discover problems and issues, and to provide updates
on operation, management and marketing techniques. The quality standard is integrated in the
entire supply chain process, starting with the products obtained from suppliers, the process of
transforming raw materials into consumable products, packaging the food products, taking the
orders of customers, and delivering the food.

Quality focused
McDonalds employees play an important role in the delivery of quality product/service delivery.
Employees are also responsible for providing customers service by asking the preferences of
clients and listening to their requests and needs, and addressing these accordingly.

Customer’s Value
McDonalds values its employees as much as it values its customers. The company applies the
employment policy of providing sufficient training to its workforce. Prior to starting work, newly
hired employees are given a rundown of the rules and regulations, company practices and the
goals of the company. After this, the employees are introduced to the different components of
the menu, process of food preparation, food-packaging techniques, serving of food, handling the
cash register, and establishing rapport with customers. New employees are given practical
exercises for experience.

Conclusion
From its humble beginnings in Illinois, McDonald’s has become one of the prevailing brand
names in the world that has become synonymous to the fast-food concept in the food industry.
McDonalds has a strong marketing strategy, being supervised by the mother company, no
matter at which part of the world the outlet is. The marketing strategies of McDonald’s guarantee
lucrative proceeds for the company. It is said that McDonalds focuses to a specific kind of
consumers with particular kinds of personalities. (Shank and Langmeyer 1994, 162) Other
articles have pointed out that McDonald’s has given the market with an alternative dining
experience. Debres (2005, 115) noted that McDonald’s has launched a sensibly priced set of
meals that gives an unfailing level of quality for the public. As well, those who are under thirty-
five years of age are deemed as the most frequent consumer’s of McDonald’s stores.