Impact of MNCs on Host Economies

Introduction

One of the key features of globalization in the increasing impact of multinational corporations (MNCs) as they expand their businesses into other countries or regions. MNCs that invest in host countries can impact the business environments of those countries in many ways. For instance, most countries that attract MNCs are usually characterized by domestic companies that are weak and technologically backward (Ferdausy & Rahman, 2015). The entry of an MNC into a market that is less advanced results in an increase of investment capital, expert knowledge, and advanced technology. This can have an impact on the business environment of the host country of technology and knowledge is transferred to the host country. The entry of a global firm into a host country usually has positive impact on the business environment of the host country. However, one negative impact of an MNC may have on a host country is that local businesses may be forced out of the market because they cannot compete. Evolving economies such as India usually attract MNCs because of their low labor costs, large customer bases, and abundant resources. Growing host countries open their markets to be attractive to foreign investment that the MNCs can supply. Economies that are in transition may also benefit from intellectual capital infusion, best practices, financial resources, and advanced technology that they would not have access to without the entry of multinational corporations (Brancu & Bibu, 2014). In turn, the multinational corporations are able to impact the business environments of the countries they enter. Therefore, it is important to delve deeper into how McDonald’s impacted the business environment of India.

Project Management Plan

Project Aims and Objectives

The main objective of the project is to evaluate how McDonald’s impacted the business environment of India. This project also aims at crafting ways in which McDonald’s can continue to favorably impact India’s business environment.

Project Cost

The costs for this project include costs associated with travel, materials, and networking. It is estimated that the project will cost $400.

Project Time

The project will take six months to complete. Deciding on the project’s objective will take three weeks and writing initial draft will take two weeks. It will also take eight weeks to gather necessary materials and resources. Writing the final draft will take nine weeks.

Project Scope

The project will investigate the impact of McDonald’s on India’s business environment. About five articles will be used as secondary sources and the project will be completed in three months. The project will not cover the impact of McDonald’s in other countries.

Project Quality

Managing the quality of this project will require that quality targets are set. It is will also be important to define how the set targets will be measured and be reported.

Project Risk Assessment

Communications Plan

Disseminating information about the project is critical to the success of the project. Participants of the project need information about the status of the project and how the project will affect them. Further, the more people are knowledgeable about the project and how it will benefit them in the future the more they are likely to take part and benefit. The audiences for this communication plan are participants and experts. Information will be disseminated through monthly status reports and website use.

The Business Environment in India Before the Entry of McDonald’s

The entry of McDonald’s into the Asian Market began in Japan in the 1970s. Before its entry into India in 1996, McDonalds had over 3000 restaurants in Asia (Rangnekar, 2014). Japan accounted for about 2500 restaurants. India’s demographic analysis in the 1990s indicated that less that eight percent of the population of India could be possible target market for McDonalds. The main reasons for having less than eight percent target market were because McDonalds focused on the urban market where only about 30 percent of India’s population lived (Rangnekar, 2014). Many people in India also earned low income which made McDonalds expensive to most people. Further, food habits of Indians were different and would take many years to change to western tastes. India is strategically located between Asia and Europe as a sub-continent with a middle-class population that is equivalent to United States’ entire population. India is one of the largest democracies in the world and is the third largest economy in Asia. India also has had governments that have been fairly stable although the country’s bureaucratic red tape is widely encountered. India has over 1,800 dialects and twenty major languages, with about 50 percent level of literacy (Rangnekar, 2014). Although India opened up its economy in 1991, the government-controlled entry into many sectors and placed restrictions on the investments and operations of MNCs. The infrastructure in India was well developed especially energy sectors and roads. The country also had many pressure groups that opposed the entry MNCs, and a socialist mindset prevailed in many people in the early 1990s (Rangnekar, 2014).

Furthermore, the ‘eating out’ market in India was significant but highly fragmented with no organized Indian player. The ‘eating out’ market was made up of many fast food options like Chaats, Pizza, Burgers, and Sandwich. There were few city or regional specific chains with limited outlets such as Wimpys, Nirulas, Havmor, and Sagar Ratna. Few major MNCs had invested in the country in sports footwear, automobiles, cereals, apparels, and beverages due to India’s huge potential. However, wrong market research inputs together with over confidence, lack of understanding of the tastes of the Indian people, rosy presumptions, low level of localization, and incorrect pricing had led to mixed outcomes and low demand. For instance, KFC opened its first Indian outlet in 1995 in Bangalore and closed after only one year in operation due to political turbulence. This setback KFC’s plans to expand its business were seriously affected. Even though cornflakes were selectively available in the Indian market, Kellogg popularized it in the Indian market. However, Kellogg was initially unsuccessful due to high pricing, resistance to new concept, and targeting family more than children. Indians had average breakfast such as idli, upman, dosa, paratha, puri bhaji and similar dishes together with milk, coffee, or tea, which did not cost more than 10 rupees per head in the 1990s. although Kellogg’s cereals were much healthier and nutritious, they cost more than 50 percent higher and the traditional Indian breakfast took long to change. The benefits of Kellogg’s products were also no evident to average Indian and pouring cold mils on cereals was an alien concept in India since hot milk was preferred. With this in mind, it is essential to look at the entry strategies that McDonalds used to enter the Indian market and have such a huge impact in the Indian business environment.

McDonalds Market Entry Strategies into The Indian Market

Before entering the Indian market, McDonald’s commissioned surveys that indicated that India had a large market for eating out. The market also had an increasing spending propensity by customers (Shah & Mujtaba, 2016). Many people in India wanted a taste of American fast food although it could not substitute Indian food. Therefore, McDonald’s decided to adapt their menu to match Indian tastes in order to succeed in the Indian market. One unique feature of the Indian market was that 50 percent of the Indian population was vegetarian which required that a separate menu is created. As mentioned in the previous section the purchasing power of the average Indian consumer was limited. As such, it was necessary for McDonald’s to incur a large investment for trials with an attractive pricing point. McDonald’s strategy in India was divided into entry, building a robust supply chain, aggressive growth, and market penetration (Shah & Mujtaba, 2016). In 1993, the fast food company entered India through a 100 percent subsidiary known as McDonald’s India Private Limited. McDonald’s India Private Limited formed a two joint ventures with Vikram Bakshi to manage East and North India and Amit Jatia to manage South and West India. McDonald’s trained its staff in the United States, India, and Indonesia to understand the business better (Shah & Mujtaba, 2016).

Adaptations of McDonald’s in India

McDonald’s always faced the challenge of adapting its menu to local tastes. For instance, the company had to add Basil to its burgers in Thailand while consumers in Japan liked Teriyaki burgers (Vignali, 2015). McDonald’s also had to adapt in Indonesia as Indonesians preferred rice burgers. Although the concept of menu adaptation was not new to McDonald’s, adapting to the local tastes in India presented a massive challenge. This is because fundamental variation in ingredients used and eating habits existed in the Indian market than what the company was used to. The vegetarian population in India was significant, Indian consumers liked their food hot, liberally used spices, vegetable oil was the medium for frying foods, and because of religious reasons, the demand for pork and beef was poor. Therefore, McDonald’s had to come up with a special menu to suit the Indian consumers with ingredients and spices preferred across the country. McDonald’s replaced the beefy Big Mac with the Maharaja Mac and created the Vegetarian Salad Sandwich and McAloo for specifically for the Indian market. Special sauces such as McImli and McMasala were created to conform to the Indian tastes (Vignali, 2015). Eggless and garlic free sauces were also created to attract the vegetarians. From its original menu, only McDonald’s Fillet-O-Fish, fries, Chicken Nuggets, shakes, and sodas were introduced in the Indian market. In general, localization of McDonald’s menu was less than 5 percent in other host countries, in Asia the localization of the menu was 33 percent, while in Indian market the localization was about 75 percent (Vignali, 2015).

McDonald’s created a Restaurant Management System for efficient management of its operations (Shah & Mujtaba, 2016). After taking into account the sentiments of the locals, no pork or beef was introduced by the company in the menu. Separate food lines were also maintained by the fast food company throughout the different stages of procurement, preparation, and serving. Separate kitchens for non-vegetarian and vegetarian food were created in the restaurants. Staff in the different kitchens also had different uniforms. Separate areas for cooking and wrapping were created. The menus for vegetarians and non-vegetarians were also clearly distinguished. McDonald’s gave its customers restaurant management system brochures to assure them that there was a clear separation non-vegetarian and vegetarian food. Customers were also toured kitchens to gain their confidence. This is because some vegetarians do not prefer entering places where non-vegetarian foods are served. McDonald’s opened its first restaurant in Vasant Vihar in New Delhi in 1996 and soon after operations in Mumbai started (Vignali, 2015). Initially, the company targeted Mumbai and Delhi only because these cities had high populations of their target market. Mumbai and Delhi were also areas of high incomes and were more exposed to western culture than other parts of India. The second phase of McDonald’s entry into the Indian market targeted expansion into towns that were proximal such as Gurgaon and Pune. The third phase involved areas that were major tourist destinations such as Jaipur and Agra. The final phase targeted malls, stations, highways, airports, and multiplexes. The company’s initial short-term objectives did not target East India or South India (Vignali, 2015).

Further, the fast foods company changed its global value proposition of convenience to provide Indians with the McDonald’s experience (Shah & Mujtaba, 2016). McDonald’s emphasized the quick service restaurant format instead of fine dining, quick service, full service, and kiosks. The main target group for McDonald’s was young family that preferred eating out with brightly lit, comfortable, casual, and contemporary restaurants. The company was also able to replicate its global strategy of happy meals that attracted children, which in turn attracted young families. McDonald’s brand was differentiated on the basis of variety and taste. The brand communication also emphasized the Indian adaptations and provided customers with value for money. McDonald’s competitively priced its products which enabled it to successfully enter the Indian market compared to KFC which had tried to enter but failed. The pricing made McDonald’s products affordable and enabled Indians to have the McDonald’s experience (Shah & Mujtaba, 2016). The Prices in India were half the prices in the United States and less costly than in Sri Lanka or Pakistan. These entry strategies made it possible for McDonalds to enter the Indian market and have tremendous impact on the business environment.

The Impact of McDonald’s On India’s Business Environment

In order to be successful in the Indian market, McDonald’s had to set up an extensive supply chain, which made businesses in the India market to be more competitive (Brancu & Bibu, 2014). McDonald’s worked with its global supplier partners together with local Indian businesses to create products that would meet rigorous quality standards of McDonald’s. The quality standards also had to adhere strictly to the regulations on food, hygiene, and health by the Indian government. Part of the development involved the transfer of state-of-the-art and modern food processing technology which enabled businesses in the Indian market to grow by improving their capability to compete in today’s global market. For instance, Cremica Industries, an Indian company worked with one of supplier partners of McDonald’s from Europe to develop expertise and technology. This allowed Cremica to expand its operations from baking to providing batters and breading to McDonald’s in India and other companies. McDonald’s entry into the Indian market led to the production of quality products in India which made the business environment in India to be attractive. McDonald’s brought in expertise in the areas of agriculture which allowed McDonald’s and its partners to engage farmers in Pune, Delhi, Ooty, and other regions to produce lettuce that was high quality (Brancu & Bibu, 2014). This included sharing agricultural technology that was more advanced and expertise such as utilization of drip irrigation systems that reduces overall consumption of water and agricultural management practices which led to greater agricultural production. McDonald’s also created market for Indian suppliers that in some cases had advanced technology. Some Indian businesses had technology but lacked the market for their products.

For instance, Dynamix Diaries through its business relationship with McDonald’s was able to get market for a large consumer of milk as it supplied McDonald’s. The company also supplied McDonald’s with other derivatives of milk. Through its relationship with Indian businesses, McDonalds open the door for Indian businesses to operate on the global stage. For instance, McDonald’s and Dynamix Diaries entered into a business partnership that resulted in an initial export order of about 12 million US dollars per year (Ferdausy & Rahman, 2015). The local supply networks of McDonald’s through Radhakrishna Foodland to obtain products from various suppliers to its restaurants in Mumbai and New Delhi and other parts of the country also benefited businesses. This is because together with the front-end operations of the company, McDonald’s had to create and manage the back-end cold supply chain which is key to its success in the Indian market. Furthermore, McDonald’s had made the business environment in India to be friendly to foreign companies. India has had a reputation of being unwelcoming to foreign companies, but with regards to fast foods companies, international businesses are today warmly welcomed into the Indian market. In the past few years, fast foods restaurants such as Taco Bell, Burger King, and Krispy Kreme have entered or have plans to enter the Indian market. For instance, Krispy Kreme has opened stores in Bangalore. Despite the economic troubles that sometimes face the country, McDonald’s has given the population a taste of international foods. This has made the Indian market attractive to global food chains that look to expand internationally. Consumer spending is also increasing steadily India with more people entering the workforce.

The entry and success of McDonald’s in India has made people to acquire new tastes instead of changing their tastes. McDonald’s provide the Indian consumer with the opportunity to experiment as the income of more people in India increase. McDonald’s has opened doors for foreign companies that wish to expand their businesses into the Indian market for fast food restaurants is expected to grow to about 8 billion dollars in 2020 from 2.5 billion dollars in 2013 (Brancu & Bibu, 2014). This is driven by the growth of fast food or quick service restaurants. Although the Indian market is growing at a slower rate than countries like China, its potential is huge. McDonalds has been able to influence the many young people in India as many young people now prefer eating out making the market attractive to foreign businesses. For instance, Burger King, the second largest burger chain behind McDonald’s entered into a joint venture with Everstone Group, a private equity and real estate firm focused on India to bring the restaurant chain into the Indian market (Brancu & Bibu, 2014). Many international players have desired to enter the Indian market but when they analyze the business environment in India they realize that it is not that easy to do business in the India. Companies must work hard and invest heavily if they want to succeed in the Indian market. However, it is easier for international chains that want to enter India today to succeed. It was difficult for foreign companies to succeed in India a few years ago. The initial entrants into the Indian market such as McDonald’s have done a lot of the difficult work. For instance, McDonald’s has been able to create a market, educate Indian people, adapt their menu to Indian taste, and create a working network of supply chain. Therefore, new foreign entrants into the Indian market can now learn from the successes and mistakes of the initial entrants which is a big advantage (Shah & Mujtaba, 2016).

Recommendations for future operations in India

Since the entry of McDonald’s has made it easy for foreign competitors to enter the Indian market, it is highly likely that it faces stiff competition in the future. Therefore, the following recommendations will enable the company to stay ahead of its competitors in India. McDonald’s is likely to lose its market share in India because other companies such as Domino’s Pizza have realized that India is an attractive market for fast food chains. In order to stay competitive, the McDonald’s should constantly evolve and upgrade its menu. The company should also strategically price its products and add more outlets. It is important that McDonald’s stays in touch with the changing preferences of customers. McDonald’s should tap into their strengths and the potential those strengths have. McDonald’s should also realize that todays consumers are conscious about their health. For this reason, the company should work on reducing calories, sugar content, and fat in its products. As mentioned above, the company can evolve and introduce a new menu for consumers who are health-conscious. McDonald’s can use its strong supply chain to create a low-calorie, sugar content, and fat menu. This can be achieved by rebranding to and repositioning as a health-conscious fast food chain. Fast food restaurants such as Subway have been able to expand in India due to the changing habit of the population of healthy eating. Finally, McDonald’s need to advertise and engage in social media campaigns to stay ahead of competitors and other international players who are likely to enter the Indian market. Although the existing strategies of McDonald’s has made it successful in India, changes to the existing strategies are needed. The company should come up with new strategies to increase its market share in India. By changing its strategy, McDonald’s will be able to capture most of the market share in India because as a developing country, India provides many opportunities for businesses and McDonald’s has been operating in the country for many years compared to its competitors. The company can use its extensive experience and market knowledge to expand even further.

References

Brancu, L. & Bibu, N., 2014. The Impact of Multinational Companies on the Employment in Romania. Journal of Social and Behavioral Sciences, IX(2), pp. 186-193.

Ferdausy, S. & Rahman, S., 2015. Impact of Multinational Corporations on Developing Countries. International Journal of Business, IV(6), pp. 121-129.

Rangnekar, A., 2014. McDonald's India Entry Strategy. European Journal of Business and Management, XII(10), pp. 135-146.

Shah, S. & Mujtaba, B. G., 2016. Contemplations for Opening the First McDonald’s Restaurant. International Journal of Marketing Practices, II(4), pp. 109-121.

Vignali, C., 2015. McDonald’s: “think global, act local” – the marketing mix. International Journal of Marketing, VIII(2), pp. 44-59.