Operating in Different Cultural and Institutional Environments: The Internationalization of McDonald s

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1 Operating in Different Cultural and Institutional Environments: The Internationalization of McDonald s Professor Eleanor Westney Visiting Professor, Aalto University School of Business Professor Emerita, MIT Sloan School of Management and Schulich School of Business

2 McDonald s = Globalization? The Big Mac index The Economist s interactive currencycomparison tool

3 Discussion Question 1. The culture of food is among the most locally differentiated aspects of culture, with great differences not only across countries but across localities within countries. Yet McDonald s has managed to build what is widely seen as one of the most global companies in this very locally responsive industry. How has it managed to do this?

4 Integration/Responsiveness Grid Industry/Sector Level Pressures for H Cross border Integration Jet engines Pharmaceuticals L Coffee Roasters Home furnishings L H Pressures for Local Responsiveness

5 Integration/Responsiveness Grid Company Strategic Positioning can differ from Industry Positioning Where would you put McDonald s? Sources of Value in H Cross border Integration Jet engines Pharmaceuticals Coffee Roasters Home furnishings L L H Sources of Value in Local Responsiveness

6 McDonald s Strategic Positioning McDonald s is Global and in Your Hometown McDonald's is the world's leading global foodservice retailer with over 35,000 locations serving approximately 70 million customers in over 100 countries each day. More than 80% of McDonald's restaurants worldwide are owned and operated by independent local business men and women. Source:

7 Porter s Diamond of Location Competitive Advantage: Conceptual Map of Location Advantage/Differences Source: Michael Porter, The Competitive Advantage of Nations (Harvard Business School Press, 1990) Government Firm Strategy, Structure, & Rivalry Input Factor Conditions Demand Conditions Related & Supporting Industries Chance

8 Some Examples McDonald s Commercials Russia: Japan: China: India: For your interest: McDonalds most popular local items

9 Discussion Question 2. How has McDonald s been influenced by the institutions and culture of its home country? Has that influence declined over the decades as it has become a global company? Key concept: Home country effects the imprinting effect of home country institutions and culture on the strategy, the organization, the culture, and the identity of a company (or of NGOs and other organizations).

10 Porter s Diamond of Location Competitive Advantage: Conceptual Map of Location Advantage/Differences Source: Michael Porter, The Competitive Advantage of Nations (Harvard Business School Press, 1990) Government Firm Strategy, Structure, & Rivalry Input Factor Conditions Demand Conditions Related & Supporting Industries Chance

11 Indicators of Home Country Effects for McDonald s Corporate Top Management Team: CEO is a UK citizen Of remaining 12, 9 USA, 1 UK, 1 Brazilian, 1 Canadian Continuing Importance of Home Market: USA accounted for 34% of total global revenues in 2015 largest business segment HQ is in USA but recently moved from Oak Park, Illinois (suburb of Chicago, site of Hamburger University, where McDonald s was dominant corporate presence) to central Chicago, a more cosmopolitan environment

12 The USA in McDonald s Organizational Structure Beginning July 1, 2015, McDonald's adopted a new organizational structure with the following market segments: U.S. the Company's largest segment, accounting for more than 40% of the Company's 2014 operating income; International Lead Markets established markets including Australia, Canada, France, Germany and the U.K., which operate within similar economic and competitive dynamics, offer similar growth opportunities and collectively represented about 40% of the Company's 2014 operating income; High Growth Markets markets with relatively higher restaurant expansion and franchising potential including China, Italy, Poland, Russia, South Korea, Spain, Switzerland and the Netherlands. Together these markets accounted for about 10% of the Company's 2014 operating income; and Foundational Markets the remaining markets in the McDonald's system, each of which has the potential to operate under a largely franchised model. Corporate activities will also be reported within this segment.

13 Discussion Question 3. What are the main institutional differences that McDonald s has had to content with as it has expanded internationally? What are the main institutional pressures it is facing today? Key Concepts: Institutional/Isomorphic Pressures Liabilities of foreignness

14 Example: The perils of Identity Russia 2014 Twelve outlets of the biggest fast food chain in the world have been closed since Russia's food safety agency Rospotrebnadzor began inspections to its more than 200 McDonald's branches across the country over alleged consumer fraud issue and sanitary violation. McDonald's Closure in Russia is reportedly caused by retribution for sanctions done by America and Europe over Russia's position in the Ukraine crisis. Source: s closure in russia 200 mc donald s stores crackdown is itreally over poltical retaliation.htm

15 A Global Target? 20+ Years of Collaboration, Alliances, and Partnerships with Non-Governmental Organizations (NGOs) for Sustainability November 2010 marked the 20th anniversary of a groundbreaking partnership between McDonald s and the Environmental Defense Fund. We collaborated in 1990 to create a Waste Reduction Action Plan for the U.S. that eventually eliminated 300 million pounds of packaging waste. It was the first partnership between an environmental group and a Fortune 500 company at a time when environmental and business interests were typically not aligned. It also provided a model that McDonald s has used with more than 40 other initiatives over the last 20 years to address a wide range of social and environmental issues.

16 A Global Target? 2006: Greenpeace demonstrators picket McDonalds restaurants in the UK accusing McDonalds of being complicit in destruction of Amazon rain forest by industrial farmers growing soybeans for animal feed. McDonalds accounted for less than.5% of Brazilian soy exports but Cargill, a major agribusiness and one of McDonalds suppliers, accounted for large proportion. Cargill refused to meet with Greenpeace or respond to its analysis, and was not a good campaign target. McDonalds Head of Sustainability met with Greenpeace campaign leader, and agreed to urge Cargill and other suppliers to cooperate, and joined inter sector talks involving Cargill and others and the Brazilian government. Within six months, agreements were reached on rain forest preservation.

17 Discussion Questions 4. McDonald s is facing serious challenges in continuing to grow, and even to maintain its competitive position. What advice would you give McDonald s as it struggles to adapt, especially with regard to framing? What advice would you give an NGO trying to pressure McDonalds to improve? (Draw on Bach and Blake s California Management Review article concept of framing.)

18 Framework for Responding to Non Market Challenges at Level of Specific Issues James Baron: 4 i Issue Interests Institutions Information Bach and Allen: (ia)³ Issue Actors with a stake in the issue Interests of those actors Arena in which issue unfolds Information Assets needed to influence effectively

19 McDonalds Current Commitment Using our Scale for Good We believe that delicious food can also be sustainable for our customers, producers and the environment. As one of the world s leading restaurant brands, we re using our Scale for Good to make this vision a reality. for good/using ourscale for good.html

20 Concepts and Frameworks GI/LR Global Integration/Local responsiveness Home country effects Porter diamond for location effects Liabilities of foreignness Institutional/Isomorphic Pressures Issue Framing i a Framework iy