Opportunities:•Growing income and purchasing power of Chinese .•By building good relationships with local govt, by assisting the development oflocal agriculture, McDs could guarantee the quality of raw ingredients.•The liberalization of the franchising sector will help them to expand business moreconfidently.•Despite less individual wealth among customers in less developed regions of ruralChina, McD’s China can still be profitable through large quantities of smalltransactions and low cost items , given that more than 700 million people live inless developed inland provinces. The earlier they enter this region, the more it willenjoy first mover advantage.•Westernization of youth and curiosity regarding the western culture.•China, potentially the worl’d fastest growing major auto market, will stimulate salefor McD’s drive through restaurants.•Growing usage of internet and mobile devices in china create additional marketingchannels for the company to reach young consumers
•Threats:•Rising food and fuel prices heighten the cost of production.•There is increasing competition from both local and foreign restaurants.•Awareness of health issues•Growing social and environment concern of the public poses threatand involves closer scrutiny from both local and international socialwatchdogs.•Rising inflation forced them to increase prices which raised consumersconcern.
Porter’s five forcesThreat of new entrants:With Chinese people’s growing appetite for western food, China offersgreat market potential for Western restaurants chains. However, newmarket entrants will require a great deal of capital and resources ifthey want to compete with McDonald’s .Considering the scale of operations of McDonald’s in China, whichowns 800 stores , company enjoys economy of scale, making it difficultfor new entrants to compete. New entrants would also find it difficultto establish network with local businesses and government agencies,which are crucial to success in China. Therefore in view of McDonald’ssteady performance across China over the past years, the threat ofnew entrants may not be particularly significant to McDonald’s in thenear future.
Porter’s five forcesIntense rivalry among Competitors:The most significant competitive threat is from existing fast foodproviders such as Burgerking, Wendy’s, KFC.Existing home grown chains such as Malan Noodle, Dininag Dumplingand YongHeKing may have less capital than McDonald’s but they couldraise funds through capital markets or venture capital , and can expandrapidly.With competition from local Chinese chains, McDonald’s is still able tostay ahead of the competition with its strong financial background anddecades of management experience in the fast food industry.
Porter’s five forcesThreat of Substitute products:Since many people tend to view food served at McDonald’s asunhealthy due to high fat contents , they are likely to look for healthyalternatives such as Subway which provides sandwiches and salads tofill the niche of healthy fast food.Further, many Chinese customers choose popular western chains asplaces to meet their friends or take a break. So, western style coffeechains such as Starbucks, which sells mainly beverages and a selectionof baked food items, are also likely to pose a threat of substitution toMcDonald’s.McDonald’s also faces threat of substitution from the fast casual diningrestaurants e.g. Pizza Hut where customers have their orders broughtto them in an upscale atmosphere .
Porter’s five forcesBargaining power of Suppliers•As mentioned in the case, 95% of materials used by McDonald’s aresourced from China.As a leading fast food chain with over 800 outletsin China, McDonald’s has stronger bargaining power .•To reduce political risks and to guarantee food supplies, they havepartnered with local state owned companies (such as companiesbelonging to the department of agriculture in Beijing) that own widenetwork of sources of food and have contacts in other governmentalagencies.•With food prices rising, McDs can still enjoy economies of scale withthe large quantities of materials it orders from local suppliers, whereasother smaller companies will bear much higher costs of production.
Porter’s five forcesBargaining power of Buyers•Chinese buyers, especially those in urban areas, exercise a great dealof bargaining power due to growing purchasing power and theprevalence of fast food restaurants and other dining locations in thecity.•For less developed cities, McD’s prices are still higher than those ofhome grown Chinese fast food restaurants. Consumers in these regionsmay opt for cheaper alternatives unless they have strong loyalty toMcD’s .•Health conscious customers may shift to other healthier options.•Controversial issues surrounding McD’s China eg violation of minimumwage law, having inconsistent standards for environmental and socialconduct globally and overcharging for its products in China may alsoinfluence the purchase decisions of some potential buyers.