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INTERNATIONALIZATION OF MULTI-NATIONAL ENTERPRISES

 

 

 

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Internationalization of Multi-National Enterprises

Abstract

Internationalization has emerged as a key opportunity for growth, in recent decades. Researchers propose that internationalization as growth of the market and development via a Foreign Direct Investment (Luostarinen, 1979). This report substantiates approaches implemented by international corporations such as McDonalds. It highlights the approaches undertaken by international corporations in entering markets through strategy and sequence. This information is mainly based on the Uppsala model and direct observation of McDonalds. Moreover, the report seeks to augment the knowledge regarding awareness of the EMNEs’ by proffering a typology of international management strategy.

Executive Summary

McDonalds Corporation runs over 30,000 restaurants in more than 100 countries around the world. McDonald’s has the capacity to attend to over 52 million customers daily, in its global chain of restaurants. McDonald’s approach is focused on delivering its internationally known food products such as the Egg McMuffin and the Big Mac. This approach has been successful as seen in the company’s financial reporting on profitability. In 2007, the organization was able to achieve sales worth 22.8 billion through its global activities. Schlosser (2012) explains that McDonald’s strategy has enabled the organization to consistently set profit records over the past 60 years of the global fast food business.

As a resilient competitor in the international market, McDonald’s Corporation relentlessly experiences the test of not only increasing its profitability, but also enhancing its environmental and social performance. McDonald’s current approach has adopted contemporary perspectives on internationalization as a motor for global growth. Currently, internationalization strategies play an influential role in the company’s quest to tailor its products and services to homegrown patrons around various markets. McDonalds endeavors to utilize innovations efficiently across its global operations. The organization seeks to develop technology necessary for boosting its operational efficiency across all organizational levels (Gallagher and Sean 2003). However, the organization faces a challenge in the form of sustainability and green programs in its operations. This will be necessary for shedding a negative image fixated on its global operations.

Internationalization of Emerging Multinational Enterprises (EMNE)

Both small and large-sized enterprises have adopted internationalization as a successful for growing their operations and profitability. Various models may be implemented in the study of these international operations. Internationalization and market entry strategies are based on approaches that best suit prevailing market conditions, and the inherent business model adopted by the corporation (Näsi, 1999). Moreover, the logic of the strategy augments from time and the market conditions that the business familiarizes with during its tenure. Each business maintains a unique strategy towards internationalization, in line with its culture and organizational objectives.

On a fundamental level, characteristics of the business and the environment influence the strategy of internationalization and market entry. An optimal combination of the fluctuating strategies is the very core of the entire strategic umbrella proffered by the enterprise strategic logic. For instance, market entry through mergers and acquisitions (M&As) may not increase risk exposure in an effect-fragmented market. With this rationale, implementation of internationalization strategy with foreign partners may augment efforts by both participants in achieving traction. Here, implementation of business logic and models is necessary for maintaining efficiency in the partnership agreements.

However, market entry may be complicated in the event of undeveloped strategy and fresh entry requirements. Here, Gallagher and Sean (2003) explain that export through sales exports may be necessary. A Foreign Direct investment approach may also be useful in such instances. Successful implementation of these tactics should enhance the organization’s chances of successful set up in new markets, despite varying market conditions and inherent risk. Moreover, internationalization of organizations is based on aspects such as access to market data and pertinent obligations of the organization to its stakeholders.

Internationalization Path of McDonald’s Corporation

Internationalization Strategies

McDonalds is significant MNE in the study of international business. Mezias (2002) highlights the organization’s emergence as a symbol of international business, thanks to its homogenous market approaches and products. McDonalds was one of the leading companies that base in fast food business to internationalize. Early internationalization has provided the organization with both positive and negative impacts. McDonald’s principal strategy has been to ensure that it influences foreign countries with American practices, thanks to its standardization of products and leadership policies. This strategy was initially received with conflict within the organization’s international outlets, as cultural gaps have existed between the organization’s business model and local consumers. To the above confrontation, the company introduced “Aunt and Uncle McDonald” in China due to the country’s collectivist influences on family ideals. In Russia, McDonald was forced to hire hosts to help clienteles familiarize with the fast food environment, as it was initially non-existent in the country or its cultural framework. Being first to the market has enabled McDonald’s to experiment with various approaches to managing cultural gaps in its business model. This has led to the organization’s position as a globally recognizable brand, with local alignment across its branches.

Pricing Strategy

McDonalds maintains a homogenous approach to its supply chain and sales units across all its foreign markets. Holsapple (2003) explains that McDonalds provides food products that merge with local choices and preferences in that market. This is well evidenced in nations such as India, where the organization has partnered with locals to create meals that match their needs and expectations. This demonstrates the organization’s preference for a speedy adoption of the theory of internationalization, and not necessarily global standardization. This strategy is deeply aligned to McDonald’s organizational culture. This is seen through the emergence of “McDonaldization,” as a viable model for the fast-food restaurant business. This organizational norm has gained a foothold in many international restaurant chains.

Likewise, McDonald’s upholds strict guidelines for its suppliers. Partners are required to provide safe and quality produce to McDonalds’ customers (Holsapple, 2003). Instances of failed implementation, of this strategy, have often forced the organization to adopt a vertically assimilated supply chain model. This has taken place in foreign markets, despite lack of implementation in the United States, McDonalds’ home market. The above approach eases McDonald’s strategy to get hold of raw materials in local markets. For instance, in Russia, McDonalds acquires its meat through an elaborate chain of international suppliers, This has taken place thanks to the Russian market’s poor implementation of international food standards. This demonstrates a clear diversion from McDonald’s standard practice. Nevertheless, McDonalds is inclined towards carrying out operations via their product depots in most operational markets. This is necessary for assuring clients of support for local produce and workers.

Political Sensitivity

Political sensitivity is based on the risk factor that arises from political decisions and events that may influence the business environment of the business in relation to the returns on investment. Political risks undertake influential role in the organizations strategy. For instance, in McDonalds case there might exist a number of nations that may fail to decline FDI in fast food organizations or even fail to approve franchise model of the business (Mezias, 2002). A case in point bases on that of India. 80% of the Indian population does not consume beef products, as well as, some religions do not permit consumption of pork products. Therefore, McDonalds had to strategize well so as to come up with fast foods that well suit the local needs and their preferences so as in a move to curtail any political confrontations that may arise.  The above move was critical and vital as it influenced McDonald’s strategy towards gaining access to the Indian market hence it upsurges McDonalds Strategy generally.

Friendliness of the environment

Environment friendliness is a critical aspect as the environment determines the sustainability of the business. The above strategy is a new and innovative concept in the world. Besides, it falls under the organizations best practices. Numerous developed nations endeavor to enforce definite laws that guide on the usage of the environment, along with, ensuring conformance with the norms. For instance, there exist certain directions that guide against disposal of effluents that occur; as a result operations and activities of the enterprise. Environmental Friendliness in effect influences good will to the enterprise and also creates a platform for the business to develop a brand. With regards to the above rationale, McDonalds engages themselves in CSR undertakings like maintainable management of the supply chain, health, and nutritional food products. Along with that, the above enterprise nowadays proffers fast foods that have low content of calorie and nutritious fast food to the health of its patrons.

Growth Strategy

Growth strategy undertakes a very critical role in the organization, and it defines the organization’s future with respect to time and space. McDonald’s growth strategy is based on three dimensions. That is; multiplying the number of restaurants, sales and profit maximization at the prevailing restaurants and enhancing international profitability of the entire business. The above growth strategy gives the goal and the approaches that the business will follow to realize its objectives. For instance, in the goal of maximizing profits and sales at the prevailing restaurants, the objectives will be attained through product development, improved and better operations, refinement, effective and efficient marketing and lower costs of operating and development. McDonalds’ leadership believes that its long term growth and sustainability bases on the customers, shareholders, and suppliers. Besides, as long as the franchisees and suppliers prove to be profitable, then the company is profitable as well. Similarly, enlightening its international profitability at the prevailing restaurants bases on the economies of scale realized by an individual market and as the company welfares from global infrastructure. Clearly, the above strategy gives a road map towards the internationalization of the McDonalds.

 

Entry strategy and Model of the Business

The above strategy is based on the manner in which the enterprise ought to win over a viable market. In McDonalds case, it cannot export is merchandise; however, it can select among the definite operation modes that exist in the foreign market. As a result, some may encompass a degree of obligation of resources as opposed to others. In particular, it can venture into an open subsidiary that contracts directly, or enter into a joint partnership with a local partner, or institute a master franchising agreement whereby the major franchisee possess and controls all the entire outlets in his or her ground or find franchisees to perform similarly. The degree of commitment that McDonalds employs to the above markets diverges of these approaches. However, in all instances McDonald’s exerts fundamental control over the various outlets it owns and the growth in the outlets in every market (Mascarenhas, 1997; Morris, Schindehutteb & Allen 2005). Therefore, McDonald’s takes on the expansion cost to an enormous extent basing on the governance within each single market and develops expansion strategy within on top of other markets.

Technology

Technology plays a critical role in the internationalization of an enterprise. It makes sure that the organization is at par with fresh-hold inventions. Similarly, it ensures communication and access of information, which is critical to the organization. McDonalds employs use of technology in its internationalization process as its system. In that, technology enhances integration, linkage, innovation and communication of in the McDonalds Corporation (Anonymous. “Innovation is on the Menu, 2005). Similarly, it employs technology in management of its activities, as, for instance, sales. Therefore, influencing marketing to a much wider spectrum.

Responses

The above report expedites various methods in which enterprises achieve internationalization. Also, it endeavors to explain strategies and sequences that enterprises employ to influence internationalization. According to Anderson & Holm (2010), there exist a number of approaches that explain internationalization and how a business manages to implement internationalization. A good example of this is The Uppsala Model. This model entails on the knowledge that an enterprise gains expertise from its homegrown market prior to shifting to other global markets.  In that, enterprises gain markets of the geographical setting near the business and then move gradually to more detached settings (Herod, 2009). Furthermore, enterprises ought to employ the mode of traditional exports and the progressively shift to more demanding modes of operations. The aforementioned paradigm inclines on the aspect growth from a small market to global and multinational market. Likewise, it brings into light the aspect of contractual obligation of the business. In that, by establishing in a particular region it binds itself to the people of that serenity. Moreover, information is also a critical factor in the above model in that, by basing on a certain region, it enables the business to acquire information regarding the above locality and the surrounding expanses. Generally, it influences management. Therefore, it makes it easier for the business to expand. The growth, contract and information aspects of the above model are critical as they require the organization to come up with expansion strategies. McDonalds Corporation shows similar characters as it started in the United States but has now mushroomed to nearly 100 countries in the world.

Evaluation of Internationalization of McDonalds Corporation

Up to date McDonald’s remains to satisfy patrons all across the world, efforts are constantly being reviewed to enhance all facets of the business. With an innovative stress on catering to homegrown tastes, innovative talent that focuses on taming experience of the food and dining, and submission with the green program of the 21st century, McDonalds is influencing the manner in which it undertakes business. The above rationale bases on the strategy that the McDonalds have towards its local and international customers. Its internationalization strategies base on real situation in the ground. It has different strategies, as, for example, the Entry Strategy and Model of the Business undertake a pivotal role towards internationalization (Ciravegna, Fitzgerald & Kundu, 2014). It ensures that the business is up to date with the trending business models and market entry strategy hence enabling the business to compete effectively with other competitors (Rennie, 1993).

Similarly, the McDonalds growth strategy and the price strategy are influential towards internationalization as they work hand in hand to ensure that the organization realizes its objectives (Yip, 20030). Needless to say, McDonald’s internationalization strategy is outstanding. It captures all key factors that have influential roles towards the business and internationalization and merges them together to come up with a successful enterprise.

Conclusion

Internationalization is no doubt an outstanding approach towards any business. Since, growth and expansion reflects the developments aspect of the business. However, the above move can be detrimental to the business if wrong infrastructure is employed towards management of the above milestone to the business. There exist a number of strategies that endeavor to influence internationalization. Besides, there exist approaches that explain the manner in which organizations approach internationalization. McDonalds Corporation is an outstanding enterprise that saw the need to expand and capitalized on the strengths of the enterprise. It instituted a strategy to venture into the multinational markets. Due to that, it came up with various business approaches and models in a bid to sustain its aspirations of entering the global market. The strategies entail; price strategy, business models and entry strategies, environment friendliness among many other strategies not depicted in the report. Regardless, of the outstanding strategies McDonalds still had some confrontations both internally and externally. Therefore, owing to above elucidations, it is rationale to affirm that internationalization is indeed an outstanding move towards any business. However, it is recommended that organizations should undertake prior research regarding the need for internationalization of the enterprise, consult and come up with critical decisions as regards the matter. Further research is necessary for the successful advancement of this discourse.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References:

Andersson, U., & Holm, U. (2010). Managing the Contemporary Multinational: The Role of Headquarters. Cheltenham: Edward Elgar Pub.

Anonymous. “Innovation is on the Menu 2005: Technology Moves McDonalds Forward.” Anonymous: 118. ProQuest. 14 Oct. 2008.

Ciravegna, L., Fitzgerald, R., & Kundu, S. K. (2014). Operating in emerging markets: A guide to management and strategy in the new international economy.

Gallagher, Sean 2003: “McDonald’s Technology Trials.” Baseline1.20: 36. ProQuest. 14 Oct. 2008.

Herod, A. (2009). Geographies of globalization: A critical introduction. Malden, Mass: Wiley-Blackwell.

Holsapple, C. W. (2003). Handbook on knowledge management 2. Berlin: Springer.

Luostarinen, R.1979. Internationalization of the Firm. Helsinki, Helsinki School of Economics.

Mascarenhas, B. (1997). ‘The order and size of entry into international markets’, Journal of Business Venturing, 12(4): 287–99.

Schlosser, E. (2012). Fast food nation: The dark side of the all-American meal. Boston: Mariner Books/Houghton Mifflin Harcourt.

Mezias, J. M. (2002). ‘Identifying liabilities of foreignness and strategies to minimize their effects’, Strategic Management Journal 23(3): 229–44.

Morris, M., Schindehutteb, M. & Allen J. 2005. The entrepreneur’s business model: toward a unified perspective. Journal of Business Research, 58, pp. 726-735.

Näsi, J. 1999. Logic concepts in strategic thinking. Academies International Conference, Las Vegas, Nevada, pp. 28-33.

Rennie, M. W. 1993. Global Competitiveness: Born Global. The McKinsey Quarterly (4), pp. 45-52.

Yip, G.S., 2003. Total Global Strategy II, Prentice Hall, Upper Saddle River, New Jersey,.

 

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