Improving McDonald’s in China
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Improving McDonald’s in China

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International Business Research project pitch

International Business Research project pitch

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  • The overarching aim of this bid is to improve McDonald’s market share among fast-food giants in China. By examining the answers to a variety of questions like those listed above and those below, data collection and analysis can be usefully employed to fulfill this aim.What makes KFC more successful than McDonald’s in China? How can McDonald’s capitalize on the children’s market?McDonald’s is effectively unchallenged my indigenous chains. What does this mean and how can it be used to McDonald’s advantage?
  • KFC was the first western-style fast-food chain to enter China, entering in 1987 in Beijing, across from Tiananmen Square.As of 2008, the scale of China’s fast-food industry has exceeded 30 billion USD and is continuously growing. This year alone, it is expected to increase by 10%.While KFC and McDonald’s dominate Western-style fast-food, western-style fast food only claims about 20% of total fast-food market share. The rest belongs to Chinese-style fast-food, which is effectively rice-dominated street food. The industry is rapidly growing and consistently drawing customers from traditional Chinese restaurants as it becomes more popular with children (and their parents, catering to their little emperor), women (feeling more empowered and equal here than in traditional restaurants) and couples (seating for two, not just eight or more) (The Cultural Politics of Food and Eating).McDonald’s entered the Chinese market at a key time in 1992, as the “family revolution” began (China’s Big Mac Attack: Ref. no 2). Family values started changing and a huge economic boom accompanied a new fever for the American. Over the last 18 years, McDonald’s has added over 1,100 outlets, including 150 in 2009 alone. By the end of 2013, it plans to have 2,000 outlets up and running. Unlike KFC, McDonald’s has remained effectively unchallenged by indigenous firms and remains the only real “burger joint.” This is primarily because of the “foreignness” that hamburgers have that fried chicken does not. McDonald’s considers itself “multilocal,” not multinational, focusing on using local suppliers and limiting American managers (Ref. no 2).
  • In the fast-food industry, the institutional-based view is the most important, having the most impact upon firms’ choices. While government restrictions and formal institutions are relatively non-influential, cultural influences (informal institutions) are extremely important, causing the success or failure of a firm (Golden Arches East). The food industry relies almost exclusively on being able to provide its customers with food that both tastes acceptable and is served in a culturally appropriate manner (cleanliness, dietary standards/restrictions). Because the fast-food industry is not a particularly necessary industry, it must therefore be a highly desirable industry in order to make high revenues. This requires the informal institutions’ acceptance (e.g. McDonald’s consumption becoming a regular activity, not stigmatized).From the industry-based view, the forces of rivalry and substitution are strong, forcing McDonald’s to adopt a competitive strategy. While McDonald’s is essentially unrivaled in China as a hamburger restaurant, it still faces significant competition from KFC and other traditional restaurants. To combat this, McDonald’s focuses primarily on cost leadership, while still including aspects of product differentiation.From the resource-based view, McDonald’s has a well-developed and well-tested value chain that has made is successful in various international markets prior to its entry into China. Also, when selling restaurants as franchises, McDonald’s is essentially selling is system of fast, consistent production which has made it famous as much as selling the product itself.
  • Just like all other competitors in this industry, the institution-based view is the most important for McDonald’s. McDonald’s success will come almost entirely on whether or not Chinese customers like their product. As discussed in the previous slide, McDonald’s success will hinge upon its continued acceptance and embracement by the Chinese.
  • Because beef is relatively expensive in China, it is considered more of a luxury taste and doesn’t particularly appeal to most Chinese. Many Chinese patrons of McDonald’s have stated they don’t particularly care for the taste of its food, but enjoy the atmosphere, novelty or safety/cleanliness of the food and restaurants. This issue is easily explained by differing tastes and preferences (informal institutions) and requires that McDonald’s continue to adapt and market its menu items accordingly. At the present, the desire to be Western is more powerful than the dislike of the food and, over time, the tastes of Chinese may change to incorporate the taste of beef. This can be seen by the ever-increasing number of children who declare hamburgers and fries to be their favorite foods.When it comes to rivalries and substitutes, McDonald’s has been effectively unrivaled when it comes to hamburger stands. However, it isn’t the only or most popular western-style fast-food available. This is an aspect of the industrial leg of the tripod, as McDonald’s competes with market rivals and pushing off substitutes for its product and service. McDonald’s has focused on cost leadership, making procedures efficient and inexpensive. As of July of 2010, the cost of a Big Mac in Beijing was about $1.98. Is it cheap enough? The average income in China is only about $6,600 (as of 2009) while in America, the average income is $25,863 (as of 2008). McDonald’s is a bit of a luxury good. McDonald’s will need to keep this in mind as a part of the industrial factors affecting its decision-making.McDonald’s restaurants are often appropriated into public space and patrons use the space much in the same way they might use a park or street bench. It is common to see a single individual reading a newspaper (supplied for free!) and drinking a single cup of coffee (with free refills!) for multiple hours. In the afternoon, school children will frequent McDonald’s with a group of friends, purchase a single order of fries for the group, spill them out onto a try to share and sit for hours chatting. While this behavior is not unheard of in the West, it is not particularly socially acceptable. So how can McDonald’s deal with customers spending hours in the restaurant but only spending a few yuan? While this appears to be strictly a matter of social norms (informal institutions), other elements are apparent as well. For example, McDonald’s offers a socially safe place for women to eat alone (a woman eating alone in a traditional Chinese restaurant would raise questions about her moral stature) that is not offered by other restaurants, so this can be seen in an industry-based vantage point. This phenomenon could also be caused by something in the management or facilities which make lingering appropriate. So what can McDonald’s do to combat this appropriation of private property, turning the fast-food restaurant into a sort of coffee shop or public park?
  • McDonald’s restaurants are often appropriated into public space and patrons use the space much in the same way they might use a park or street bench. It is common to see a single individual reading a newspaper (supplied for free!) and drinking a single cup of coffee (with free refills!) for multiple hours. In the afternoon, school children will frequent McDonald’s with a group of friends, purchase a single order of fries for the group, spill them out onto a try to share and sit for hours chatting. While this behavior is not unheard of in the West, it is not particularly socially acceptable. So how can McDonald’s deal with customers spending hours in the restaurant but only spending a few yuan? While this appears to be strictly a matter of social norms (informal institutions), other elements are apparent as well. For example, McDonald’s offers a socially safe place for women to eat alone (a woman eating alone in a traditional Chinese restaurant would raise questions about her moral stature) that is not offered by other restaurants, so this can be seen in an industry-based vantage point. This phenomenon could also be caused by something in the management or facilities which make lingering appropriate. So what can McDonald’s do to combat this appropriation of private property, turning the fast-food restaurant into a sort of coffee shop or public park?
  • To collect the data, a questionnaire, interview process and four case studies will be executed. More information on each of these will be detailed later.To conduct the study, a mixed-method research strategy will be employed, collecting both quantitative and qualitative data and analyzing each separately. This will allow for a more complete and comprehensive view of the issue at hand.Because this is an issue that will likely evolve over time as McDonald’s becomes even more established as an ordinary part of Chinese culture and lifestyles, a longitudinal study will likely show trends in changing while McDonald’s is presently more interested in addressing the situation as it stands presently. To do this, a cross-sectional study will be best.
  • In order to accommodate China’s large size while maintaining a respectable confidence level, approximately 2,000 questionnaires will be distributed using a stratified random technique. 500 questionnaires will be distributed electronically (email) or by hand (potentially necessary for the retiree age group) to each of the age groups through universities or high schools, companies and retirement communities and clubs. From these respondents, three will be randomly selected from each age group to be interviewed personally in each city. In each city, twelve total respondents will be interviewed, making a total of 48 total interviewees.The sampling frame (4 Chinese cities) has been chosen to gather information from both residents of large, cosmopolitan cities as well as smaller, more traditional areas. The four case studies will be divided between these four cities, selecting the restaurant in each city with the highest traffic and observing the patrons’ behavior and the amount of time spent in the restaurant. Included in these studies will be study of the sales and revenue with respect to the linger-time of customers. In order to reach both frequenters of McDonald’s and those who rarely or never patronize McDonald’s, the questionnaires will be distributed at neutral locations (schools, companies, retirement communities/clubs).
  • In order to reach the students and professionals, the questionnaire will be distributed electronically via email. However, because many retirees either do not have email addresses/capabilites or unpublished/unavailable addresses, these questionnaires will be distributed in paper format through retirement communities, neighborhood organizations, etc. The questionnaire will be simple and straight-forward, beginning with identifying category questions (age group) and progressing to a few category, ranking and rating questions. In order to obtain as many responses as possible, the questionnaire will not exceed 15 questions.Category questions will be like “How long is your average McDonald’s visit?” Respondents will then check one of the following: “5-10 minutes,” “10-30 minutes,” “30-60 minutes,” “<60 minutes.”Ranking questions will be like “Rank the purposes for your average visit to McDonald’s.” Respondents will then rank the following: “quick meal,” “visit with friends,” “read the paper,” “reward a child’s good behavior,” “celebrate a birthday/important event.”Rating questions will be like “Rate the friendliness of the staff.” Respondents will then rate using a Likert scale format from “extremely unfriendly” to “extremely friendly.”
  • Because these interviews are meant to be explanatory, they will be semi-structured with the interviewer asking a few, broad questions similar to those asked in the questionnaire which will allow the respondents to elaborate upon their answers. Organized into four small groups by age group (three respondents each), the respondents will be able to discuss responses in order to help the interviewer come to more cohesive and developed conclusions. In addition to the sample questions listed above, questions will ask the respondents to discuss how they know when it is no longer appropriate to linger (e.g. social norms, employees’ hints, etc.) and other such topics.
  • To pilot the questionnaire and interview questions, focus groups will be gathered in Beijing. Approximately 150 responses will be gathered to the questionnaire which will be distributed in a manner analogous to the intended distribution method for the study itself. In addition to the questions of the study questionnaire, respondents will be asked about the clarity of the questions, how long it took for them to complete the questionnaire and to comment on the difficulty or ambiguity of any questions.To pilot the interview questions, four focus groups will be held following the same guidelines as the focus groups of the study. In addition to the interview questions, participants will be asked to comment on aspects of the interviewing process (e.g. how comfortable they felt with the interviewer, whether or not individual interviews would have been more effective/comfortable, if visual aids would have been helpful, etc.).
  • Before analysis, all qualitative data will be transcribed and translated (parallel translation) into English in order to facilitate better analysis. Because the purpose of this research is to explain the phenomenon of the appropriation of private property into public space in order to resolve the issue of lobbies filled with customers purchasing minimal goods, analytic induction will allow the analysts to gather information from questionnaires, interviews and case studies and empirically establish the causes of the phenomenon. However, using this method, conclusions may be drawn about the present conditions that may or may not be the root of the phenomenon (correlation not necessarily true). But by examining the conditions in four differing cities, this weakness should be held to a minimum as the variety of information should allow the analysts to better identify correlations. For missing data in the questionnaires, the imputed response substitution technique will be used. This will replace any missing data with a mean of the rest of the respondents’ answer. This will keep the data from becoming skewed.MANOVA analyzes the relationship of two or more metric dependent variables and several non-metric independent variables. Because our independent variables (e.g. cultural influences, lobby atmosphere, etc.) are non-metric while our dependent variables (e.g. total purchase) are metric, this technique will work well, allowing us to analyze the relationship between them. However, because MANOVA boils the hypothesis down to a single p-value, this technique runs the risk of over-simplifying the data and conclusions.
  • Because questionnaires will be distributed and interviewees will be selected in neutral locations (locations other than a McDonald’s restaurant), overarching views should be represented, not just the views of McDonald’s frequenters, helping to decrease a subject error or bias. In order to decrease an observer error, interviewers will be given thorough training to avoid differing manners of asking questions. All interviews will be recorded and analyzed by the analysts later, not the interviewers, in order to decrease an observer bias.Piloting results will help increase validity by clarifying ambiguous questions, making interviews more comfortable, etc. These adjustments will help assure that the information collected is, in fact, the information the respondent meant to impart. By drawing from a large, diverse sample size in four heterogeneous cities, it should be easier to identify a causal relationship by making it easier to identify outliers and non-correlated data.
  • For the entirety of the project, a timeframe of 12 months should be enough. Approximately eight months will be spent in data collection, including development, translation and distribution of the questionnaire, training of the interviewers, and observations and collection of data in the case studies. The remaining four months will be spent in data analysis. Because much of the data is qualitative, more time will be required than for quantitative data.
  • For the sake of brevity, the study will take place simultaneously in each city. In order for this to be possible, there must be four independent interviewers: one for each city. Each interviewer will be responsible for conducting four total focus groups, one for each age group in their city. It will thus be necessary that each interviewer speaks fluent Mandarin and English. Interviewers will also be responsible (along with an assistant or small team) for distributing questionnaires in their city.Two translators will be needed for parallel translation of the questionnaire. While mixed translation would be ideal, parallel translation will be sufficient and economical.Specialized researchers/analysts will be needed to develop the questionnaire and interview questions, train the interviewers, assist in questionnaire distribution, analyze data and summarize conclusions.A proprietary software package for statistical analysis, as well as a proprietary software package for qualitative data analysis, will be necessary. Fame and Nvivo would be preferable as I have prior experience with these programs.

Improving McDonald’s in China Presentation Transcript

  • 1.  Erika Friedmeyer
  • 2.  Aim: To improve McDonald’s market share among fast- food giants in China How can McDonald’s appeal to adults (as more than the parents of children)? How can McDonald’s balance the novelty of western cuisine with local tastes?
  • 3. Industry McDonald’s KFC entered in 1987  Entered Beijing in 1992 Over $30b as of 2008  Over 1,100 restaurants Dominated by KFC &  Unchallenged by indigenous McDonald’s firms Rapidly growing industry  “Multilocal,” not multinational
  • 4.  Institutional Factors o Informal, cultural influences are very strong o Informal > Formal Industrial Factors o Rivalry, Substitution forces are strong o McDonald’s uses Cost Leadership Resource Factors o System of fast, consistent production o McDonald’s has a well-developed, tested value chain
  • 5.  Institution-Based View • Informal institutions Customers have to like it!
  • 6.  Beef isn’t very  Informal institutions popular  Industry factors China offers a huge market. What about rivals?  ??? Restaurants are used as public space
  • 7.  Why are McDonald’s restaurants appropriated into public property, turning it into a sort of public park? What can McDonald’s do to combat this?
  • 8. 4 Case Questionnaire Interviews Studies Mixed-method Research o Both quantitative and qualitative data Cross-Sectional Time Horizon o The issue will evolve over time
  • 9.  4 Chinese cities: Beijing, Shanghai, two small cities/towns School-age 2,000 respondents (14-25) Young Stratified Professionals Professionals Random Sampling (40-60) (25-40) Retirees (≤60) Interviewees will be randomly selected from
  • 10.  How long is your average visit? o 5-10 min, 10-30 min, 30-60 min Rank the purposes for your visit. o Quick meal, visit with friends, read the paper Rate the friendliness of the staff. o Extremely Unfriendly Extremely Friendly 1 2 3 4 5 6 7
  • 11.  Semi-Structured Respondent-based Focus groups Sample questions o When you visit McDonald’s, with whom do you go? o How long is appropriate to linger after the meal is finished?
  • 12.  150pilot questionnaires  Focus groups in Beijing o Various age, social groups Participants asked to comment on clarity, difficulty of questions
  • 13. Qualitative Quantitative  All data cleaned Transcribed/translated  Imputed Response Analytic Induction Substitution o Conditions may not mandate phenomenon  Multivariate Technique o Multivariate Analysis of Variance o Risk of over-simplification
  • 14.  Large sample size Drawing from four cites: two large, two small Variety of age groups Not limited to McDonald’s frequenters Highly-trained interviewers
  • 15.  12 months o 8 months for data collection o 4 months for data analysis
  • 16.  Four interviewers Two translators Researchers and Analysts Statistical, Qualitative Data Analysis Software
  • 17.   References can be found in an additional document upon request.Contact Mrs. Dena Warneke (dwarneke@trinity.edu) for more information.