MGT704 Global Business Management: Cross Border Strategy Report
The purpose of the study is to analyze the analyze the strategy of McDonald's while operating business in Australia. In order to analyze the operational strategy of the company, VRIO analysis, SWOT analysis, CAGE distance framework, Porter's generic strategy and Porter's diamond model have been discussed along with the Porter's Five Force model. In this regard, it has been seen that the company uses a cost leadership strategy for enhancing the client base of the company. The study has also emphasized on the recommendation that it would require to consider a product differentiation strategy in order to increase the perceived value of the customers.
This report is authorised by Dr. Wayne Graham, Course Coordinator of MGT704 Global
Business course. Management, at the University of the Sunshine Coast, Queensland, Australia.
There are not any primary sources to get the information about the company to process the research work. For that, the secondary data has been used to evaluate the circumstances in the progression of the cross-border business operation of McDonald. The secondary data which is used to conduct the study has been collected from the company website.
The scope of the study is obtained to gather the information about McDonald Australia and the cross-border strategies for the company to the help of some strategy methods i.e, SWOT Analysis, VRIO Analysis, Porter’s Five Forces, CAGE Distance Framework, Porter’s Diamond Model and Porter’s Generic Strategy.
In this section of the research work, it has been described the process of the above mentioned six methods which are used to illustrate the cross-border strategies in accordance to open more franchises in other countries for the globalisation of the business structure of the McDonald Australia. In order to develop the study the outline of the methodology is based upon some analysis like- Resource-based view of the firm, Industry based view of the firm, Institutional based view of the firm and Current strategy based view of the McDonald Australia.
1.5. Firm Introduction
McDonald was founded in 1940 as a fast food company based in America. The company also provides the franchise business all over the world. McDonald Australia was established in the year 1971. The headquarter is situated in New South Wales in Australia. The chain of the restaurant was nominated in BBC news, 2012 the second largest private company which employer base is almost 1.9 billion.
2.1. Resource-Based View of the Firm
2.1.1. Firm’s Resources:
Firm collects its resources in three ways i.e physical resource, financial resource and human resource. The raw materials are the physical resources which are collected from the local market of Australia. The financial resources are generated from the bank of the country. Human resource indicates the employees of McDonald all over the world (Bloomberg.com. 2018 Terms of Service Violation).
2.1.2. Firm’s Capabilities:
The total revenue of the firm was generated almost $69 billion in the year 2017. The capacity of the production is huge due to the total revenue of McDonald. The company serves more than 33000 restaurants in 118 numbers of countries across the world. The company maintains almost 67 million-customer base globally.
2.1.3. Firm’s Value-Chain:
The firm serves almost 100 countries all over the world with a huge number of franchise retail stores. In order to create value, the company buys its raw material from local farmers and producers. On the other hand, it conducts regular research and development activities for enhancing the product quality. This kind of research and development activities increases the perceived value of the products to the customers of the company (Bloomberg.com. 2018 Terms of Service Violation).
2.1.4. VRIO Analysis (with Diagram)
McDonald Australia commonly known as MACCA has achieved a high value on its brand. For this, the firm has the capability to expand their business to globalisation.
Although the business of the firm is franchise-oriented to spread the business in the global platform, however, the main authority still remains in the hand of the management authority of the firm which is responsible to control the whole market of McDonald.
The imitability of the company is not that much strict however the products of the firm are highly protected by the patent rights and the functional authenticity is well maintained which is very difficult to achieve.
Due to the well organisational structure of the firm the franchise business of McDonald provides a good support to extend the business chain globally.
Figure 2: VRIO model
(Source: Zajda, 2015)
2.2. Industry Based View of the Firm
2.2.1. Porter's Five Forces
188.8.131.52. Competitive Rivalry:
Fast food industry is a sector where competition is very high for the easy access to new entry of different fast food companies in the same sector. The strength of the capability of advertisement increases the opportunity of other companies. Location of outlets of other fast food companies is also implied a great impact on the existing companies.
184.108.40.206. Supplier Power:
The power of the supplier of McDonald is low due to the low price of the raw materials and the highly competitive value of the product. Due to the high volume of sales of the product in the global market, the suppliers cannot imply their price on the firm. Thus, it cuts the bargaining power of the suppliers.
220.127.116.11. Buyer Power:
In accordance with the uniqueness of the products, the high value of the brand image of the firm and attractive price, there has no chance for buyers to switch the product. It defines the low power of buyers.
18.104.22.168. The threat of Substitution:
Threat of substitution is low to moderate due to the authenticity of the product taste and the brand value of the firm. Furthermore, there are a lot of franchise stores all across the country which increases the availability of McDonald products for the customers.
22.214.171.124. The threat of New Entry:
The threat of new entry into the fast food industry is very high due to the limitation on business regulation. The start-up cost of the fast food industry is not high, thus it is very easy to access in the market.
2.3. Institutional Based View of the Firm
2.3.1. Formal Institutions:
The Formal institution of McDonald includes the office decorum, purchasing policies, and sales policies. These formal institutions help to control the internal operation of the business to improve the company’s infrastructure.
2.3.2. In-Formal Institutions:
The Informal institution of McDonald's includes the communication process, rules, and regulations regarding the allocation of responsibility in the internal process.
2.3.3. CAGE Distance Framework
CAGE Distance Framework reflects the parameters to evaluate the company’s distance with other countries. The cultural distance between to countries not only implies the geographical distance, however it also indicates the cultural distance, distance of economy, distance of administration. Through these four distance parameters help to evaluate the fruitful outcome from global business marketization.
- Cultural distance: McDonald implies a strategy to cut off the cultural distance by introducing a new menu on the basis of the local taste of each country.
- Geographical distance: McDonald emphasises the business diversification through the advanced technology to cut the cost price and communication gap.
- Economical distance: McDonald implies the valid price for all the products in order to reach all standard of customers to maximize the target audience of the firm.
- Administrative distance: Administrative or political distance creates a huge impact on the business segmentation of a company. McDonald ties up with the business to the local partners of every country to extend the overseas business.
Figure 2: CAGE distance framework
(Source: Zajda, 2015)
2.3.4 Porter's Diamond Model
126.96.36.199. Factor Conditions:
Factors like production, skilled labour, the capital infrastructure of the company can control the company’s authentication in order to increase the competitive advantages of the company. McDonald Australia can make several changes to develop their product orientation, increase the internal business infrastructure through maintaining regular operation and also recruit skill labours to provide the best service to their customers (Zajda, 2015).
188.8.131.52. Demand Conditions:
Demand condition in the economy of the country gives the proper reason to improve the products according to the customer satisfaction. The demand for McDonald's becomes low for the new entry of different companies in the fast food industry.
184.108.40.206. Firm's Strategy, Structure, and Rivalry:
The presence of the different fast food industries in the same location in the country increase the competitiveness of the products and also generate the company's potentiality regarding the innovation of new products. Conglomerates companies are always beneficial to obtaining the strategy and structure of the company. However, according to Hsieh et al. (2015) McDonald's spends million dollars for advertising purpose to compete with their competitors in the market in the last several years.
220.127.116.11. Related and Supporting Industries:
McDonald Australia supports the related companies through exchanging the ideas which increase the business proximity in order to facilitate the upstream and downstream industries.
Figure 3: Porter’s diamond model
(Source: Hsieh et al. 2015)
2.3.5 SWOT Analysis
18.104.22.168 Strength & Weaknesses:
The strengths of McDonalds Australia are the high brand value in customer's mind, innovation in producing new products and strong value of the products. On the other hand, the weakness of the firm is the limited target audience. It can decrease the product value in terms of customer's satisfaction (Reddy et al., 2017).
22.214.171.124 Opportunities & Threats:
This company serves a low percentage of customers globally. Therefore the opportunity of internalisation increases the total market volume of the firm’s global business. On the other hand, the increase in local competitors all over the world indicates the threat to the firm. The global economic recession also generates a threat to the firm. Moreover, the customers become health conscious which can create an impact on the total business of McDonald's as a threat.
2.4. Current Strategy of the Firm of the Firm
2.4.1. International Strategies (by Bartlett Goshal model)
International strategy by Barlett & Ghosal model indicates the four forces of pressure, by which a firm can run their operational management in two different areas, such as, local responsiveness and global integration.
The horizontal axis indicates the cost pressures and the vertical axis indicates the pressures of local responsiveness. The four key features in this model are global strategy, transnational strategy, international strategy and multi-domestic strategy. Those are illustrated in below:
126.96.36.199. Global Strategy:
The global strategy of McDonalds Australia there is low pressure in local responsiveness. The reason is that the company is very much aware about the local competitors as well as the taste of local customers and hence the new entries of food industry cannot capture the loyal customers of the firm. It helps to grow the industry in global platform.
188.8.131.52. Transnational Strategy:
In this strategy, the company tries to maximise the local responsiveness to increase the global integration. For this, the company needs to train their staffs’ expertise in the technological area to mitigate the complexity of the competition.
184.108.40.206. International Strategy:
In the strategy the company tries to capture, the domestic activities because of the international operations are well managed. Thus, it indicates that the area where the firm’s local responsiveness is low and the global integration are low as per local needs of the products.
220.127.116.11. Multi-domestic Strategy:
The company’s aim in this strategy is to maximise the needs of the local customers through maintaining the inter-personal relationship with the customers. This strategy varies in different countries as the domestic needs are not same in every country. Thus this strategy is illustrated the high local responsiveness and the low global integration of the firm in the market.
Thus, it is to be stated that a company can make international business strategy by considering two basic factors such as cost pressure in the international market and the pressure for local responsiveness. By using this approach, a company can identify the appropriate production and promotional strategy.
3. Analysis of the strategy of the firm
Cross-border strategies on global management segment signify the all over the overseas business orientation of a firm. In this research work, McDonald Australia is selected to evaluate the business extension in order to maximize the productivity as well as the profitability of the business operation. In addition to illustrating the study, some of the business strategies are used in this research work such as Porter's generic strategy, CAGE distance framework, Porter's five forces model, SWOT analysis, VRIO analysis and Porter's five-diamond model. In each of the strategy, it is noted the process that McDonald Australia follows to expand its business all over the world. In Porter's generic model McDonald selects the cost leadership strategy to minimize the market price of the products through cut the cost of production of the firm to generate the competitive advantage in overseas market (Intriligator, 2017). Through SWOT analysis the firm analyses the business opportunities in internalisation of the market volume of McDonald. Porter's diamond model reflects the advantages through its factor condition such as a recruit of skilled labour, an increase in the company's infrastructure, which can generate the overall market orientation. From CAGE distance framework the firm identifies the value of local culture which generates the product advancement to maintain the customer's satisfaction. From Porter's five force model the firm can understand the process to cope up with the rival competitors through promotion and advertisement. VRIO analysis helps the firm to maintain the brand value for influence the market growth of the business (Luthans and Doh, 2018).
The study indicates the effectiveness of the strategies through which the company can proceed in the future. Furthermore to achieve the business goal in market segmentation of globalising the market profitability as well as the productivity and most importantly create the strong customer base in the overseas market. All six strategies generate the pros and cons of the McDonald's to evaluate the perfect scenario through which the company can make the idea of improvising the factors which generate the awareness of the business progression.
The cross-border strategies are important in approaching the business segmentation to increase the globalisation of the firm. Therefore it concludes that the study evaluates the process of the business strategies in order to improve the business operations. Furthermore, the study illustrates the appropriate techniques through which the firm can grow their market globally.