Have you ever wondered why McDonald's restaurants, arguably the world's leading fast food company, needs a local as well as a global strategy? After all, the US-based company is a massive global operation. It has standardized products like the Big Mac, Coke drinks, chicken McNuggets, French fries and cheeseburgers.
It's able to deliver major economies of scale and scope from its international operations. It has global brands, global customer satisfaction. It can even research new menu items globally and recover the costs across many countries. classic benefits of a truly global strategy.
So why does it need a local strategy? Why bother to have a strategy that fails to exploit its global benefits? There are five main reasons.
Beef is fundamental to the McDonald's recipe formula. The company goes to great lengths to source quality beef to well-developed global standards. But some countries don't eat beef. For example, India, where the cow is regarded with reverence and not eaten.
Even in China, chicken is more popular in some regions than beef. But it's more than just beef. McDonald's has many local menu variations, ranging from a Chinese menu in Germany to special vegetarian dishes in India. Thus, McDonald's needs to cater for local tastes, whatever the consequences for global strategy. Local competition is perhaps easier to understand.
For a variety of historical reasons, different countries have developed different fast foods. food chains over time. For example, you'll find Wendy's in New York, but not Nando's. You'll find Nando's in South Africa, but not Burger King.
Like any major multinational, McDonald's needs to be able to position itself against its local competitors. Local laws are also relatively easy to recognize. Governments in different countries around the world have different views on what can be sold in fast food outlets. For example, you can buy beer in a McDonald's in Spain, but beer sales are illegal in McDonald's in the United Kingdom. Local franchises are more complex to understand fully.
McDonald's does not own all its restaurants centrally. For many years it has been operating a franchise system in many countries. Franchising means a cooperative strategy in which a firm develops a business concept and then offers this to others, the franchisees, in the form of a contractual relationship.
In the McDonald's case, the company not only offers its product range and brands, but also design guidance on building an individual restaurant, the fat fryers, the grills, and so on, but also training of managers and staff to ensure standardized product delivery, even pricing. But there's a problem here, both for McDonald's headquarters and for the franchisee. If the headquarters makes all the key decisions, then what incentive is there for the franchisee?
How can you motivate your franchisees to perform better and deliver more profits? The McDonald's answer, at least in part, is local promotions. Part of the marketing budget is controlled locally by the franchisee, offering specially tailored... local promotional activity to deliver higher sales.
Finally, we have local service quality. It's all very well for McDonald's restaurants headquarters in America to lay down international standards for its product range. But the products are cooked locally in each restaurant individually with local people actually delivering the local Big Mac, the local French fries and the local Diet Coke in Hong Kong, in Berlin, Germany or in St. Petersburg, Russia. Global must be made and delivered locally at McDonald's.
It can't be done from a central location like a Nike sports shoe manufacturer or an Apple iPhone manufacturer. What this means is that McDonald's has standardized equipment, but it also has extensive local rule books. Major training academies called Hamburger Universities. and continuous monitoring of local quality.
What does this mean overall for McDonald's global strategy? It means that the company needs to operate a strong local strategy alongside its global operations. McDonald's restaurants is local as well as global.