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Business Environment


The organizational purposes of businesses
The nature of the national environment of McDonalds
The behavior of organizations in their market environment
The significance of the global factors that shape national business activities
Reference list

The McDonalds is a public corporation operating in the restaurant industry. The company is the largest chain of fast food and hamburger outlets (McDonalds 2013). The company serves about sixty-eight million consumers on a daily basis, at the 119 countries covered by its business outlets. The headquarters of the company is located in the US (Thomas and Pederson 2004). The McDonalds Company is a public company traded on the New York stock exchange. The company has adopted the legal structure of a franchising company, structured along functional contours, where the CEO oversees five major activity areas. These areas include operations, which covers franchising and equipment; development, which covers construction and property finance, which entails new product development and supply chain management (McDonalds 2013). The other areas are marketing, which entails the marketing and sales and human resources, which entails safety, personnel, customer service and hygiene. The business profile of the company covers property investing, restaurant franchising and operating company restaurants. The products of McDonalds include fast foods like hamburgers and chicken; vegetarian foods like salads and other food items like rice and soup (McDonalds 2013). The company offers franchising services, marketing, and property management and investment, where it collects rents (Thomas and Pederson 2004).
a).        The three major objectives of the McDonalds include quality management, where the company ensures that all its outlets offer services in the quickest manner possible. The company expressly requires all its outlets to offer high quality products at the reasonable prices offered by the different outlets; the prices of products at the different outlets vary, depending on market dynamics and the country of location. As an aspect of quality management, the McDonalds Company pursues to expand the customer awareness of the nutritious menu items offered at the different outlets. For example, the company has expanded its menu, to include foods and beverages containing vegetables and fruits in its menu. Towards getting the information to the customer, the company has worked hard to increase the awareness of its customers, about the vegetable, fruit and dairy options available at its outlets, for children and other consumer groups (Rungfapaisarn 2011; Gasparro and Jargon 2012). The company strives to offer the highest quality of food products, including the vegetarian fast foods offered at its vegetarian outlets and its organic milk, which were introduced in response to increasing global obesity levels (Ashbridge 2007). Quality management is monitored through evaluating the performance of the employees of the company, against the standards communicated through the training process and the training manual of the company (GAPbuster 2009). The quality of products is maintained through the standardization of the infrastructure and the processes employed at the different outlets (GAPbuster 2009).
The second major objective of the company is increasing customer satisfaction, which is an important aspect of the company’s business. The company believes that without increasing their customer loyalty, the result will be a decrease in the meaning of the company developed in the customer’s mind (Mourdoukoutas 2012). It also believes that low customer loyalty results in a decrease in the positive words of mouth expressed to family and friends, which will reduce its association to excellent service delivery. The company pursues customer satisfaction through the identification of the needs of consumers better than its competitors. For instance, many of the company’s customers associate McDonalds to the inviting, friendly atmosphere they experience (Mourdoukoutas 2012). The restaurants, also offer comfortable seats, a playground for children and television at its outlets. They also strive to serve customers conveniently, offering their orders in a fast and efficient way. Customer satisfaction is monitored through the feedbacks given by customers, by the word of mouth responses collected by the company from its customers, as well as through company surveys done among the customer population (McDonalds 2013). The company evaluates the customers regarding the levels of customers through a number of channels including observation and direct interviewing, which complements the information collected from the feedbacks collected.
The third major objective of the company is upholding the company’s reputable image. The McDonalds Company started its first outlet in 1954, and by 2011, the company had approximately 32,000 operational outlets, which served a customer population of more than 60 million people on a daily basis, across the more than 100 countries covered by its chain of restaurants (Mourdoukoutas 2012). The McDonalds Company maintains its reputable image by ensuring that the service outlook and the products offered at their different outlets are uniform. For instance, for a consumer at Paris, they will find many of the menu products at the outlets in a New York City outlet. The company also pursues improving its status as a player that develops careers, rather than a company that offers, dead-end, minimum-wage scales for its employees (Mourdoukoutas 2012). The achievement of maintaining the company’s reputation is maintained through the standardization of the services as well as the menu items offered across the different outlets, as well as the training of staffs on service delivery (GAPbuster 2009).
b). The main stakeholders of McDonalds include the shareholders of the company. The company can improve the effectiveness of shareholder investing in the company, through increasing the revenues created by the company, so that the returns realized by the shareholders increase. Through that approach, the company will encourage more investment among current investors, and new investing among potential investors. The second main stakeholder groups are the customers of the company, who are the different groups and entities served at the many outlets. Towards increasing the engagement of its customers, the company should ensure that they respond to the changing customer needs, as well as forecast demand according to the target market. An example is India, where their entry as a vegetarian restaurant was very successful (Gasparro and Jargon 2012). Towards increasing the engagement of customers, the company should also ensure that they increase their customer service and the quality of the products offered. The third main stakeholder is the workforce, which includes the management and the employees of the company. Towards increasing the engagement of its work force, the company should improve employee development, which will increase the capacity of the employees to deliver. The company should also adopt effective motivation strategies, for example, the recognition of excellent performance, so as to encourage better service delivery from its workforce.
c). The McDonalds company strives to engage in environmentally responsible business and process. These include the consumption of less energy, releasing fewer emissions into the atmosphere and reducing the wastes injected into their surroundings (McDonalds 2013b). The ways of achieving the three major areas of green responsibility include the use of sustainable packaging and ensuring proper waste management at its varied operational centers. In the area of energy conservation, the company is pursuing alternative sources of energy, intended at increasing their energy consumption efficiency, which will save money and lower their environmental impact (McDonalds 2013b). The company has also invested in the green restaurant design, by ensuring that building standards ensure the protection the environment. The company also engages organizations and experts, including Conservation International, Wildlife Fund, The US Green Building Council, and Environmental Defense Fund, among others. The strategic alliances are expected to increase the participation of the company in environmental protection (McDonalds 2013b).
a).        An emerging economy is one which is moving from the status of a developing to an industrialized or developed status, while a transitional market is one which is shifting from a centrally administrated economy (where government control is high) to a free market economy. Examples of a government controlled economy include the Soviet block nations, while free market economies include European and North American nations (Myant and Drahokoupil 2010). The differences include that in a transition economy, more people are likely to enter the middle of the lower class, as the transition brings about many business opportunities into the economy. Also, the transitional economy differs from the emerging economy, as the very poor are likely to fall into extreme poverty, as they will have limited or no access to the factors of production or opportunities (Myant and Drahokoupil 2010). An emerging economy, on the other hand, is one characterized by a low or medium level per capita, while a transitional economy is most times characterized by a low level of per capita. Both a transition and emerging economies undergoing economic reforms, which are expected to raise the economies to better economic performance (Mundell N.D). Among the two types of economies, there is a constant pursuit to realize efficiency and more transparency in the capital markets. Both a transitional and an emerging economy are characterized by liberalization, where the forces of demand and supply determine the prices of products, compared to where prices are set by a planning organization (Myant and Drahokoupil 2010).
Different from a transitional economy, an emerging economy is characterized by a young and growing workforce and an underdeveloped infrastructure, in the areas of housing and roads. Among the two types of economies, there is a characteristic, rapid increase of foreign investment levels. Some examples of transitional economies include Brazil, Russia, and Ukraine. Examples of emerging economies, as of May 2011 included Chile, Colombia, China, Egypt and India (Myant and Drahokoupil 2010). The case of china is clearly an emerging economy, as the Chinese economy is characterized by an increasing transition from a closed to an open market economy (Jbili, A., Kramarenko, V., Bailén, J., 2007). The Chinese economy is also characterized by a high, young population of the workforce, which is replacing the aging workforce, and a ready market for the products from the increasing production. The Chinese is also characterized by a rapidly increasing level of foreign investing, which identifies it an emerging economy (Mundell N.D). Among transition economies is Hungary, as its economy is characterized by increasing unemployment, as a result of the privatization of companies. Hungary is also experiencing a rising inflation level, which is caused by the removal of price control. The economy is also characterized by a lack of reliable infrastructure, low levels of entrepreneurship and skills, high inequality levels (Economic online N.D).
From the different characteristics of emerging and transitional economies, a conclusion can be drawn, that the characteristics of an emerging economy are evident from transitional economies. The characteristics include that there is a shift from a government controlled economy to a liberalized economy (Economic online N.D). This leads to the conclusion that an economy can fall under the classes of emerging and transitional economy classifications. The two economies are characterized by a rapid shift from low to middle class levels, as more opportunities are availed (Mundell N.D).
b). The recovery phase of the business cycle is characterized by a rapid increase in the confidence of customers, about the economy’s market. The recovery phase is characterized by reduced bank lending rates, particularly interest rates, which increase the capacity of investors and companies to finance investment projects. The phase is also characterized by a rapid increase in production levels, which is adjusted in response to the overall demand in the particular economy. The increase in production levels enhances the capacity of entrepreneurs to offer more employment opportunities, which results in an increase in the incomes of consumers (Neumeyer and Perri 2004). As a result, the consumers’ ability to purchase capital goods increases. The phase is characterized by an increase in the profit margins of corporations, and the GDP of the economy rises in response.
Governments can increase the opportunities available to businesses at the recovery stage, by requiring banks to offer credit at lower interest rates, which will encourage the funding of more investments (Neumeyer and Perri 2004). The government can also encourage more foreign investment, which will enhance the creation of more employment, so that more money gets into circulation. The government can also increase government spending, which directs more money into circulation, allowing more customers to purchase the increased produce by businesses. The government can also reduce taxation, locally and when exporting, so as to enhance more business locally and internationally (Neumeyer and Perri 2004).
c). According to a report by AlixPartners (2013), as of Feb 2013, the US and the global restaurant is anticipating a forthcoming year of disappointing growth. The anticipated reduction in sales is the result of a reduction in dining frequency, in the next 12 months. These findings were drawn from a survey of 1000 adult consumers by AlixPartners. As a result of the anticipated changes, restaurants will not be able to increase revenues through the opening of new outlets, but will also require engaging innovative strategies. Among these strategies are strategic differentiation, increasing cost management levels and through employing innovation in marketing. Among the industry players that will realize growth, there are expected to engage in a fierce competition for a substantial market share. The major determinant of competitive advantage will be the response to the major influencers and drivers of consumer choices, which will be followed by targeted-oriented programs, to drive growth under the uncertain conditions. Among the major influencers of customer dinning choices are convenience, speed of service, and the customer experience of consumers after service delivery. McDonalds, a major industry player in the restaurant industry is responding well towards adjusting to the uncertainty of demand. For instance, the company is investing in healthy foods and in markets, where differentiated diets are the major demand characteristic (Gasparro and Jargon 2012). An example is entry into the Indian market as a vegetarian restaurant and its inclusion of organic diets (Ashbridge 2007).
a). The characteristics of a perfect competition include that the market should not be characterized by rivalry, where there is a large number of buyers and sellers and the commodities on sale are similar in many all aspects. The features, also include that the products offered by the different sellers should be similar in all aspects, implying that a customer can substitute those of one industry player with those of another. The market should not impose restrictions on the entry and the exit of buyers or sellers (Petri 2004). This implies that in the case the available players increase prices, so they can make abnormal profits – then new entrants should come into the industry, so they can level out the profits realized from sales. A perfect market is characterized by a perfect knowledge of prices and the commodities in the market, among the consumers. The consumers should also be perfectly informed about the prevailing market conditions, therefore will not be willing to offer any price above the prevailing price. A market with perfect competition should be characterized by a perfect mobility of the different resources and factors of production, from one usage to another. This characteristic ensures that all industry players and firms are able to control an equal share of the services of the available factors of production, including labor. Such a market should also be characterized by the absence of transportation costs, as commodities will be offered at the same cost, at the different locations; there will be a single market price. In a perfect competition, there is no development of attachment with the customer, as the products of the different sellers are the same; therefore buyers are free to change from one to another seller (Petri 2004).
The US and global restaurant industry, in which McDonalds is a major actor, does not fit into the definition of a perfect completion market, as most of the characteristics cannot be seen it the industry. The characteristics that are absent in the restaurant industry include that the industry is dominated by a few large scale sellers, who sideline smaller players. The industry is characterized by a high degree of product differentiation, which shows that the products offered are not homogenous, marking the industry as one that cannot qualify as a perfect competition (Petri 2004). In the industry, entry and the exit of sellers is not free, as evident from the price differentiation of McDonalds, which shows that there is no normal price balancing. Other characteristics that cannot be identified in the restaurant industry include the perfect mobility of production resources, the lack of perfect knowledge among consumers, and there is also no absence of transportation costs. Contrary to a perfect competition, McDonalds capitalizes on the building of customer attachment, which shows that the industry does not have perfect competition (Petri 2004).

b) In the US and the global restaurant industry, a number of barriers to new entrants can be identified. Those that can be identified from the case study of McDonalds include the purchase of patents and licenses for the trademarks of market players (AlixPartners 2013). This barrier has been effective, as new entrants cannot use the name, the packaging, or the logo of the McDonalds, without going through franchising and contracting as an agency outlet. Differentiated pricing in the different markets has been effective in the industry, as players like McDonalds offer their prices at a differentiated price at its different areas of operation, showing that it has maintained a market reputation in the different areas (Mourdoukoutas 2012). The developmental nature of the brands of different players is another barrier to new entrants, as companies like McDonalds are known globally, which offers them a competitive advantage above their competitors, especially new entrants. The company has maintained the strength of its name across the globe, which draws from the effective market entry strategies employed at different markets. These include its entry into vegetarian markets like India, as a vegetarian chain of restaurants (Gasparro and Jargon 2012). Major players have prevented the entry of new players, through taking advantage of the customer loyalty developed among consumers, locally and internationally. The marketing strategy of major players like the McDonalds is a barrier to new entrants, as the company changes according to the changing needs of its customers and responds to the unique needs of its different customer groupings (Mourdoukoutas 2012). Major industry players are also increasing entry barriers through the retention of the highly experienced members of the labor force, and the expansion of its outlets also acts like a barrier to new entrants. The standardized service delivery of players like McDonalds is another barrier used by the company to control the threat of new entrants. This is evident from the company’s offering of a similar menu at its different operational areas (AlixPartners 2013).

c). The cultural environment of the McDonalds includes the social and the cultural aspects of target markets, including the differentiated dining preferences and the constant calls to eat healthy, which is increasing, in response to increasing obesity levels in the world (Franke, Hofstede and Bond 1991). Some of the ways, through which the McDonalds demonstrates its adaptation to the cultural environments of target markets, include the shift to offering vegetarian-only outlets in India (BBC 2012). This change was employed, in response to the market profile of the Indian market, which is characterized by the non-consumption of meat products, particularly cow meat, as the Hindu regard the cow as a divine creature (Gasparro and Jargon 2012). Another case of adapting to the cultural environment is the inclusion of varied menu items, including organic products like milk, fruit salads, and vegetarian items, in response to the constant calls over global obesity levels (Ashbridge 2007). From the case of the McDonalds, BBC (2012) discussed the strategic shift of the company, towards offering innovative menu listing, so as to take advantage of the emerging markets that are characterized by varied customer prefers and product preferences. One such example is the case of its entry into the Middle East, where they are offering meat-free dishes, particularly pork-free menu items, as the culture of the Muslims regards pork as a religious-banned food (BBC 2012).
a). The international market is paramount to the entry of McDonalds into the international market, as it determines the alternatives available to it, in pursuing its entry into developed and emerging markets, where customers’ needs are differentiated. Some of the entry strategies available to McDonalds include the creation of international agencies, strategic alliances, and international outlets (Franke, Hofstede and Bond 1991). However, the entry of McDonalds into the international market is staged in a manner that allows it to cater for the needs of the target market, as opposed to imposing strategies that have worked elsewhere. As a result, the products of the company are localized according to the customers’ needs, offering products that are preferred at the target markets. An example is the product localization of the company’s products in India and the Middle East, where the larger populations prefer meat-free dishes (Gasparro and Jargon 2012; BBC 2012).
b). The challenges facing UK businesses in emerging markets like the UAE include competing in new competitive environments, creating a new customer base, countering new competitors, and countering the increasing expectations of market regulators (ERNST & YOUNG 2011). Some of the risks that present a challenge for the businesses include intellectual theft; there is an increasing level of regulatory pressure, dealing with the varied cultural preferences of customers. Other challenges include sourcing of qualified, skilled labor, developing strategic partnerships with local players, and reviewing risks and control levels in the new markets (ERNST & YOUNG 2011). This leads to the conclusion that UK companies venturing in emerging markets should not anticipate profitability in the short run, as they have to master the market profile of the markets, before they can exploit their potential. However, effective research prior to investing can help the entrants in staging more effective entry models, thus increase immediate profitability.
c). The debt crisis in Ireland and Greece is likely to affect UK businesses, as evidenced by the recent banking sector scandals, due to the impact of the debt crisis on the global economy. The effects include that interest rates will rise, so that governments can raise the money to settle the debt. As a result, the borrowing capacity of UK businesses will reduce, which will result in reduced investing in new markets and opportunities (PricewaterhouseCoopers 2013).

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