AN INTRODUCTION: BACKGROUND TO MCDONALD’S ROAD TO INTERNATIONAL
Major products and sectors of business
McDonald’s began as a restaurant that offered only hamburgers, cheeseburgers, and milkshakes, expanding its menu in the early 1960s to include French fries Over the years, the menu has significantly evolved to feature iconic items such as the Big Mac, introduced in 1967, which includes ground beef patties, Big Mac sauce, lettuce, cheese, pickles, and diced onions on a sesame seed bun Other notable additions include the Big Tasty, launched in 1997, featuring a third-pound beef patty, lettuce, tomatoes, onions, and Emmental cheese; as well as popular items like the Snack Wrap, Happy Meal, Egg McMuffin, Apple Dippers, Baked Apple Pie, Chicken McNuggets, Chicken Select Strips, Premium Salads, and McGriddles for breakfast.
When expanding into international markets, McDonald's faced challenges with its menu due to diverse cultures and customs To accommodate local tastes and adhere to specific laws or religious beliefs, the fast-food giant offers regionalized menu options tailored to different countries Consequently, menu items available in one region may not be offered in another, highlighting McDonald's commitment to respecting local preferences and traditions.
Macdonald’s in India, the menu doesn’t have beef and pork product, in deference to Hindu and Muslim beliefs.
Some globally popular fast food items include French fries, Big Macs, Chicken McNuggets, Chicken Select Strips, Happy Meals, and double cheeseburgers.
After researching Vietnam’s market, beside Big Macs, french fries, Chicken
McNuggets, Macdonald’s Vietnam added one menu item, it is Mcpork sandwich.
Recent Activities
In recent years, Despite of the highly competitive of other rivals such as Burger King, KFC, etc…
McDonald’s Corporation applied new strategies, which made the giant fast food chain get many achievements.
From the graph below, although the recession was happening, the revenue of McDonald’s was still rising slightly.
About McDonald’s Vietnam, running only more than one month, McDonald’s Vietnam got great achievement.
Director Nguyen Bao Hoang announced that customer turnout has far surpassed expectations, with 22,500 clients served within the first 24 hours After 30 days of operation, McDonald's has welcomed over 400,000 customers, leading to the consumption of approximately 61,980 Big Macs.
The first success that make the Board of Director of McDonald’s Vietnam consider about the opening of the second restaurant, it will also open in Ho Chi Minh city.
An analysis of the choice of foreign market
McDonald's Corporation is the largest fast-food chain globally, renowned for its hamburgers, French fries, and soft drinks, operating in 119 countries The company's international success is driven by its strategy of "think global, act local," allowing it to effectively enter foreign markets After achieving success in the United States, McDonald's opened its first international restaurant in Canada on June 1, 1967, paving the way for its expansion worldwide.
The primary motivation for a company’s international expansion is profit, supported by additional factors Recognizing the potential of modern consumer trends, McDonald's expanded overseas to introduce fast food to new markets Initially, McDonald's entered Europe, where tastes closely aligned with American preferences in the late 20th century The chain then ventured into Asia, capitalizing on the region's growing demand amidst increasing work pressures As domestic markets mature and resources become costly, companies like McDonald's seek lower-cost opportunities abroad to maximize profits.
To optimize profitability and leverage comparative advantages, McDonald’s invests internationally to access new markets and resources, aiming for economies of scale and risk diversification This strategy allows the company to capitalize on the strengths of each market McDonald’s primarily targets medium- and high-income consumers who demand quality products The company focuses on countries with growing GDPs, particularly during periods of economic development A prime example is Vietnam, which McDonald’s entered during its recovery from a financial crisis, as it boasts one of the highest GDP growth rates in Asia at 6% per year, second only to China.
BUSINESS STRATEGY OF MCDONALD’S IN VIETNAM
External analysis for McDonald’s in Vietnam
Since joining the World Trade Organization (WTO), the Vietnamese government has implemented various policies to boost Foreign Direct Investment (FDI) Notably, Resolution No 103/NQ-CP, issued on August 29, 2013, outlines strategies to enhance the efficiency of attracting, utilizing, and managing foreign direct investment capital in the near future.
To enhance the criteria for investment incentives, it is essential to conduct further research beyond just investment domains and geographical locations This includes focusing on projects within supporting industries, those that offer high value addition, initiatives that utilize significant amounts of domestic materials, and endeavors committed to the transfer of advanced technology.
- Reviewing and removing excessive restrictions and allowing greater participation in capital markets and financial markets on the principle of effectiveness and closeness;
- To complete the regulations so as to strengthen the management of labor in foreign investment projects;
- To complete the mechanism and policies to attract foreign direct Investment into supporting industries; study and draft the Law on Encouragement and Development of supporting industries;”
McDonald's has significantly impacted the Vietnamese fast food industry by injecting substantial capital, a move supported by the Vietnamese government's encouragement of foreign direct investment (FDI) as outlined in Decree No 103/NQ-CP.
Despite a notable decline in state investments and ongoing challenges in non-state investments within the real estate, gold, and foreign exchange markets, McDonald's stands out not just as a leader in fast food retail but also as a significant player in real estate investment Through its "Business Facilities Lease" franchise model, McDonald's retains the right to repurchase all assets after the initial business year, offering franchisees the option to extend their agreement for an additional 20 years.
McDonald’s Vietnam has successfully completed 10 terms of its strategic management contract, significantly enhancing its asset repurchase strategy This innovative approach to real estate investment is relatively new in Vietnam, allowing McDonald’s to optimize its location advantages By focusing on key driving routes, the company effectively boosts its profitability while offering its unique “drive-thru” service.
Currently, Vietnam's political situation is stable, with expected minimal changes in regulations and administrative systems in the coming years This stability is crucial for entrepreneurs, as it allows them to formulate effective strategies, knowing that the political environment significantly influences domestic consumption.
While the political landscape in Vietnam offers several advantages for McDonald's strategies, there are notable challenges as well Despite government encouragement for foreign direct investment (FDI), the presence of complex procedures and documentation can hinder progress Additionally, the lack of transparency in Vietnamese administrative systems and the prevalence of corruption at various levels create obstacles that can lead to time-consuming processes and unfair competition.
The economy significantly influences all sectors, including the fast-food industry, affecting everything from raw material suppliers to manufacturers of finished goods and services.
Since the 2008 financial crisis, Vietnam's economy faced significant challenges, marked by rising unemployment and declining consumer spending, posing threats to businesses of all sizes However, by late 2012, the situation began to improve While major fast-food brands like KFC, Lotteria, BBQ, and Jollibee struggled, McDonald's strategically entered the Vietnamese market, targeting the medium- and high-end consumer segments With Vietnam's rapidly growing economy and a population exceeding 90 million eager for American fast food, McDonald's positioned itself for success in this promising market.
According to Bloomberg, only on 2 starting days, there were more than 40,000 people queuing to buy a set of Big Mac and its revenue in these days proved the potential consumption.
However, we also need to look into the side effects of economy and its future trends.
McDonald's Vietnam sources all its raw materials from global supply chains, importing beef from Australia and pork and potatoes from the U.S These imported products face high taxation in Vietnam, with a 5% tax on beef and a 20% tax on potatoes If McDonald's does not seek domestic partners for sourcing, it will incur significant expenses not only from taxes but also from transportation and preservation costs.
Vietnam's youthful population, largely born after the war, is quick to embrace Western trends, making fast food an integral part of modern life, especially in bustling cities where time is limited Restaurants offering delicious food, appealing decor, and reasonable prices attract busy individuals seeking convenience, whether dining in or grabbing takeout on the go Additionally, the popularity of fast food among young Vietnamese often stems from a desire to be seen in trendy establishments, elevating fast food from mere convenience to a status symbol for the middle and upper classes This unique cultural perspective positions chains like McDonald's for significant growth in Vietnam's evolving market.
Since its opening, McDonald's Vietnam has experienced significant profits, but it's important to note that this success comes just over a month into its operation Initial excitement can often mask the long-term growth potential of a business Other fast-food brands have also enjoyed a warm reception in the Vietnamese market due to their novelty and appeal, but their revenue growth has slowed as consumers became accustomed to these offerings The decline in interest can be attributed to growing awareness of the health risks associated with fast food, including obesity and related diseases from non-fresh ingredients Additionally, changing the eating habits of Vietnamese consumers poses a challenge due to the distinct differences in taste between Western and Eastern cuisines Thus, the future trajectory of McDonald's in Vietnam remains uncertain, and it may follow the same path as previous fast-food companies.
McDonald's enhances the customer experience by offering free wireless internet access in its outlets, allowing patrons to browse the web while enjoying their meals A standout innovation is the drive-thru section, which features a touch-activated screen for easy ordering, eliminating the need to queue Additionally, the drive-thru includes music to entertain waiting vehicles and a large window that lets customers see their meals being prepared right from their cars.
McDonald’s lacks an official online presence in Vietnam, creating challenges for customers seeking delivery services, especially compared to competitors that offer robust online ordering systems.
In conclusion, despite McDonald's recent entry into the Vietnamese fast food market, the company appears to have strategically planned for its late arrival Unlike other industry giants, McDonald's advantages, including strong financial resources, a reputable brand, and established relationships with local authorities, position it favorably against potential competitors Additionally, a five-force analysis highlights the threat of new entrants in this evolving market landscape.
Industry analysis
According to Euromonitor International, Vietnamese fast food industry has a potential development trend with a value of more than 543.6 million US dollars, annual growth rate went up from 13.9% in 2012 to 15% in 2014.
There are 3 characters to determine competitive environment in an industry:
Rivalry within the industry is intense.
Role of government is minimal.
Spending on advertising is high.
The Vietnamese fast food industry is a competitive landscape, attracting numerous major enterprises eager to capture a share of the market With a large, youthful population that readily embraces Western culture, foreign brands leverage their financial strength and the local preference for international options to dominate the sector As a result, the fast food market has become predominantly occupied by foreign players, overshadowing domestic companies.
The fast food landscape in Vietnam is dominated by three major players: KFC, Lotteria, and McDonald's KFC, the first fast food brand to enter the Vietnamese market in 1997, has become synonymous with fast food for many locals Meanwhile, Lotteria has seen rapid growth and currently boasts the largest number of outlets in the country Additionally, other significant brands like Burger King and Jollibee are also competing in this vibrant market.
Table 1.Comparison among McDonald’s rivalries
Chart 1.Market shares of fast food brands in Vietnam in 2012 (FTA Research)
The Vietnamese government maintains relatively loose regulations on the fast food industry, primarily focusing on food safety oversight In fact, it actively promotes the growth of this sector by implementing open policies that attract foreign investment and enterprises.
In a competitive market, high advertising costs are a defining characteristic, particularly for quick service restaurants dominated by large chains These companies utilize substantial national marketing budgets to heavily promote their brands through television ads and partnerships with popular movies and sports events A prime example is McDonald's, which invested significantly in its "Happy Meal" promotion tied to well-known cartoons like "The Smurfs."
Happy Meal”, “Minion Madness at McDonald’s!”, “The Croods – Good Food Hunting”, and enclosed a small puppet in each product.
The industry boundary is a crucial factor that can shift over time due to evolving customer needs and emerging technologies Fast food restaurants, for instance, have adapted by offering low-cost delivery services, allowing customers to conveniently order from home McDonald's has also innovated by expanding its menu to include coffee, positioning itself to compete with Starbucks and catering to customers who enjoy their meals alongside a cup of coffee, whether dining in or on the go.
International analysis
In response to growing regulations and market saturation in the United States, McDonald's has successfully expanded into international markets by utilizing standardized products, maintaining clean and inviting environments, and capitalizing on its strong American brand equity.
By leveraging economies of scale, McDonald's significantly reduces cost pressures, leading to lower buying costs associated with production and distribution The company invests approximately two million dollars daily in standardized television advertising, ensuring a consistent global brand image through uniform products, slogans, and packaging Employment practices are equally standardized, with around five hundred thousand employees trained to follow identical procedures and methods, ensuring consistency in service All staff wear the same uniform and adhere to a comprehensive "textbook" that outlines food preservation, cooking times, cleanliness, and task distribution, allowing only designated roles, like "cooks," to handle food This rigorous adherence to standardized processes enables McDonald's to maintain uniformity in products and services while achieving cost reduction and economies of scale.
McDonald's marketing and product offerings have significantly adapted to local cultures, highlighting the importance of cultural relevance in the catering industry Architectural designs and atmospheres have been tailored to suit different regions, preventing customer boredom and diversifying the brand's appeal Websites are also customized and translated to align with local preferences The most notable adaptations occur within the product offerings, where menu items are modified to cater to local tastes, such as lamb or chicken burgers in India and the Chicken Maharaja Mac in New Delhi, alongside the Kebab Burger in the Middle East and the introduction of beer in European franchises These adaptations have been greatly supported by franchises, demonstrating McDonald's commitment to localizing its menu.
Vietnamese customers exhibit strong loyalty to their traditional cuisine, which is deeply rooted in a rich dining culture Central to Vietnamese food is rice, cultivated in the country's water paddies, with a diverse range of dishes that span from simple meals to elaborate royal cuisines The cuisine is characterized by a harmonious balance of meat, fresh herbs, and a judicious use of spices, making Vietnamese food one of the healthiest and most exquisite in the world To succeed in the Vietnamese market, McDonald’s has adapted its menu by introducing local favorites such as the "McPork," catering to the unique tastes of Vietnamese consumers.
Business strategies of McDonald’s in Vietnam
McDonald’s corporate strategy focuses on concentration within a single business, allowing the company to enhance its market share, consumer loyalty, and operational efficiency By dedicating resources to developing targeted strategies and conducting thorough market research, McDonald’s aims to effectively address consumer needs and preferences However, this approach carries significant risks; failing to accurately meet consumer demands could lead to decreased profitability and potential bankruptcy.
McDonald's employs a strategy of related diversification by offering a variety of similar products, primarily focusing on burgers and salads, such as the Big Mac and McChicken, alongside various salad options The company also expands its reach geographically while maintaining a consistent menu theme For instance, in Vietnam, McDonald's has introduced the McPork sandwich, catering to local tastes in a pork-loving market.
McCafé, a coffee-house-style chain launched by McDonald's in Melbourne, Australia in 1993, has expanded globally, responding to the growing consumer trend for espresso coffees In Vietnam, the first McCafé opened on March 22nd McDonald’s benefits from related diversification by creating synergy between its food and coffee offerings, utilizing shared resources such as advertising, suppliers, and locations to enhance customer experience and operational efficiency.
Developing a business-level strategy is grounded in functional-level strategies and involves two key steps: first, identifying the domains where the company will compete, based on the optimal leverage of its core competencies; and second, determining the competitive approach for each selected domain, choosing between a low-cost strategy, a differentiation strategy, or a combination of both.
McDonald’s has effectively implemented a combined differentiated and low-cost strategy in the fast food industry Leveraging its strong marketing capabilities, the company has consistently crafted sophisticated advertising campaigns that have established its unique brand identity and set it apart from competitors Additionally, McDonald’s has honed its core competencies in supply chain management, focusing on manufacturing and distribution to maintain stringent cost control.
McDonald's Vietnam leverages the same core competencies as its global franchises, benefiting from high internet penetration and rapid information transfer, which enhances its brand recognition Despite its late entry into the Vietnamese fast food market, McDonald's opts for a differentiation strategy rather than a low-cost approach to stand out against competitors like KFC and Burger King This differentiation is evident in its unique product offerings, strategic placement, and exceptional customer service.
McDonald's Vietnam prioritizes quality to ensure consistency across its restaurants, mirroring the commitment found in franchises worldwide To maintain high standards, McDonald's sources only two ingredients locally—tomatoes and lettuce from Da Lat—due to concerns over the quality and consistency of Vietnamese suppliers All beef is imported from Australia, while pork and potatoes come from the United States, and packaging materials are sourced from China or Malaysia.
McDonald’s has successfully adapted its menu to cater to local tastes as it expands globally, introducing unique products that resonate with regional consumers In the Netherlands, the McKroket combines a classic Dutch kroket with a burger, while in Quebec, Canada, the fast-food chain serves poutine, a beloved dish of fries, gravy, and cheese curds Additionally, in Vietnam, McDonald’s offers McPork sandwiches, specifically designed for the local preference for pork.
In a surprising move, McDonald’s has chosen Dien Bien Phu Street, rather than a central location in HCM City, for its first restaurant in Vietnam This strategic site connects northern provinces and key southern economic and tourism hubs such as Dong Nai, Binh Duong, and Ba Ria-Vung Tau By introducing the drive-thru service, McDonald’s caters to car owners eager to experience its offerings without leaving their vehicles This location positions McDonald’s at the heart of traffic flow between the south and north, enhancing its accessibility and appeal to customers.
Internal Design: The first shop of McDonald’s in Vietnam would cover a very large area of
1,300 square meters Designed in accordance with McDonald’s standards, the shop would have a sophisticated world – standard playground for children, a café, serve clients 24/24 and comprises a parking lot.
McDonald’s is strategically opening its first restaurant at a key traffic hub in Ho Chi Minh City, a vibrant economic center, marking a significant move to penetrate the Vietnamese market This decision reflects a "bold yet feasible" approach, especially as the downtown area is saturated with numerous competing fast food brands Additionally, McDonald’s is set to launch its second location near Ben Thanh Market, further establishing its presence in the heart of the city.
In Vietnam, McDonald’s emphasizes efficient service by training over 50 staff members for seven months in the Philippines to master operational and management skills, adhering to global standards The training encompasses both theoretical knowledge and practical application to ensure top-notch customer service Strategically located near highway exits and busy business districts, McDonald’s facilitates easy access for cars and motorbikes Furthermore, the branch prioritizes a fast ordering process, utilizing innovative technologies to enhance the customer experience, including providing customers with electronic handheld devices to place their orders while waiting in line.
McDonald's Vietnam has revolutionized fast food service by allowing customers to place their orders before arriving at the counter, significantly reducing wait times Operating 24/7, the restaurant features car and motorcycle drive-thru options, ensuring a quick three-minute service per customer These innovative services were introduced in Vietnam for the first time, enhancing the overall dining experience.
Organization Structure
Thompson Chairman and COO McDonald’s
President and COO President and COO
Executive vice Executive vice in Greece president president
Zone managers Zone managers in Asia
Regional managers Regional managers in Pacific
Modes of Market Entry
McDonald’s, a leading global fast food chain, operates 32,000 restaurants and serves over 60 million customers daily The company’s rapid international expansion is largely attributed to its innovative franchise model, which allows for cost-effective growth while maintaining control over brand and operational standards.
McDonald’s is expanding its presence in Vietnam, partnering with Nguyen Bao Hoang of IDG Ventures Vietnam to establish its brand through a franchising agreement with Good Day Hospitality While the financial details of the deal remain undisclosed, experts estimate that the franchisee must invest between $1 million and $1.9 million to open McDonald’s restaurants in the country.
Performance
On February 8, the new outlet opened its doors to a large crowd, serving nearly 22,500 customers within the first 24 hours In its initial 30 days, the restaurant sold an impressive 61,980 Big Macs, surpassing even the highest expectations The first McDonald's restaurant had an estimated 400,000 customers in its first month, and director Nguyen Bao Hoang noted that their customer numbers significantly exceeded expectations.
CONCLUSION AND RECOMMENDATION
Recommendation
McDonald’s should maintain a benefits program that motivates and retains its Vietnamese employees, ensuring it attracts and rewards talented staff This approach will enhance employee satisfaction and productivity, ultimately strengthening the corporation's leadership in the fast food industry.
McDonald’s should conduct a comprehensive market survey of competitors’ store locations in Vietnam combined with demographic data that will help McDonald’s management discern market gaps, Improving profitability and overall efficiency.
To maintain its competitive edge in the fast food industry, McDonald’s must consistently offer the right products at the right prices As consumer tastes evolve daily, it is essential for McDonald’s to adapt by providing a diverse range of flavors and price options that cater to varying preferences.
McDonald’s should continue to enhance its presence in Vietnam by actively motivating employees to embody the brand's values, leading initiatives on environmental sustainability, and promoting health-conscious choices among consumers.
Conclusion
McDonald’s faces significant challenges due to its late entry into the Vietnamese fast food market To achieve success, it must focus on its core strengths of consistency and quality while exploring innovative options Additionally, the company should consider expanding more aggressively into other Asian and African markets, where growth potential is higher.
Strategic Management, 9 th edition by Charles W.L Hill and Gareth R.Jones
Strategic Management lectures by lecturer Le Thai Phong
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