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2009

Global Business environment
Feasibility report for the expansion of MacDonald

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(Pakistan or Saudi Arabia)

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MacDonald a (MNC) is seeking the opportunity of doing or
expanding its cross-border business in two countries Pakistan and

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Saudi Arabia. This report evaluates which country is more suitable
for the business expansion of the MacDonald. This report also
focuses on the broad objective and strategy of the business
expansion of MacDonald and this report also includes an analysis
of business environment factors of both levels at country and
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industry levels.
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Ibrahim
University
8/4/2009


Table of Contents

Global Business Environment ................................................................................................................. 3

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Introduction (Macdonald):...................................................................................................................... 3
Objective ............................................................................................................................................. 3
Strategy ............................................................................................................................................... 4

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Countries for expansion ...................................................................................................................... 4
Analysis of Saudi Arabia .......................................................................................................................... 5
Politics of the Saudi Arabia: ................................................................................................................ 5

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Economy of the Saudi Arabia: ............................................................................................................. 6
Social and cultural Factors of Saudi Arabia:........................................................................................ 6
Technological factors of Saudi Arabia: ................................................................................................ 7
Analysis of Pakistan................................................................................................................................. 7
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Politics of the Pakistan: ....................................................................................................................... 8
Economy of the Pakistan: ................................................................................................................... 8
Social and cultural Factors of Pakistan: .............................................................................................. 9
Technological factors of Pakistan: .................................................................................................... 10
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Brief Comparison between both economies ........................................................................................ 10
Conclusion ............................................................................................................................................. 11
References ............................................................................................................................................ 13
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Global Business Environment

Introduction (Macdonald):

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McDonald is the world's largest chain of fast food restaurants. It serves as a
multinational company that is serving nearly 47 million customers daily.
McDonald's basic products are hamburgers, cheeseburgers, chicken

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products, French fries, breakfast items, soft drinks, milkshakes, and
desserts. Now it has added salads, snake wraps and fruit in its product line
in order to capitalize on growing consumer interest in health and wellness.

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The most attractive feature of attraction for McDonald's restaurants is that
it includes playground for children and advertising geared toward children,
and in most of the restaurant’s the interior design is manufactured in such
a way that it compels customer comfort and relaxation within the place. For
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example it introduces lounge areas and fireplaces, and most comfortable
chairs, sofas and tables. The MacDonald’s business operation model is
based upon franchises. Each McDonald's restaurant is operated by a
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franchisee that may be affiliated to the company or the corporation has it.
The company’s revenues are generated from the rent, royalties and fees paid
by the franchisees, as well as sales in company-operated restaurants where
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company sells the end products to the customers. McDonald's revenues
grew 27% over the three years ending in 2007 to $22.8 billion, and 9%
growth in operating income to $3.9 billion due to its expansion of its
worldwide and huge success in the diverse cultures.
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Objective

MacDonald’s basic objective is the Market Expansion worldwide. Macdonald
has a great success story in the market expansion and going globally. The
globalization of the MacDonald’s is getting up and up. Its market expansion
has an aim to:

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 It has aim to provide good food in a friendly environment accompanied
with fun.
 MacDonald wants to be a socially responsible company
 It plans good dividends for the shareholders.
 It has aims to provide swift food in reasonable price and quality.

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Strategy

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MacDonald’s is a company that operates in the world in the form of
franchises. It has franchises all over the world that are some self operated

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and rests are operated by franchisee. McDonalds has a strategy to provide a
franchise with its share in it. So that it can also share profits with the
franchisee. Similarly in the real profitable areas the full control is
administrative by the MacDonald’s itself. MacDonald’s exports the basic
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ingredients of its products from its head offices to protect its recipes, while it
outsources the cold drinks and stuff from the local market. This is the basic
strategy on which MacDonald functions. The basic strategy for Macdonald
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for these countries would also be Export.
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Countries for expansion

Here in this business model we are evaluating two countries for the
business expansion of the MacDonald. We have selected Pakistan and the
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Saudi Arabia for the target markets. Pakistan is an asian country that is
situated in south west of the asia. It has its physical and geographical
importance. This is a big country with the population of about 160 million
people. In camparison to it saudi arabia is also an asian country that is
situated in the middle east of asia. This country is also with huge population
of 27.6 million people. The common thing in these two countries is this that
both of them are muslim countries. Saudi Arabia is contating the holy
places for the muslims like Khana Kaba and Holy Mosques of Makka and

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country. The law and order in Saudi Arabia s very strong. There have never
been rituals or any terrorist activities in the Saudi Arabia. The Saudi Arabia
constitution is Quran (the Holy book of the Muslims) that is governed by the
Sharia (Islamic Law). That is why the kingdom of Saudi Arabia is very
peaceful and crime and terrorist ratio is nearly zero as Islam has very strict

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punishments for the law breakers.

Economy of the Saudi Arabia:

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The economy of the Saudi Arabia is entirely depends upon the oil resources.
The Saudi Arabia has big reserves for oil. Till the time of 1950, 1960, the
Saudi Arabia reduced its poverty to the huge level. Now there poverty is

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almost vanished. Similarly the kingdom is promoting foreign investments in
the country in the fields of like power generation, telecom services and
insurance. Similarly it also promotes the entertainment, restaurants and
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building hotels for the people. They have to do joint venture with the
government. In the Saudi Arabia there are certain fields that are exclusive to
the government while some of them restrict foreign investments in the
country. The basic benefit of the Saudi government is that if you are
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functioning there you have not to pay huge taxes. All you just have to pay is
the 2.5% of the annual income’s Zakat. Similarly there is huge number of
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foreign labour in the Kingdom of Saudi Arabia. About 5 Million people from
different countries are working in Saudi Arabia. Similarly Saudi Arabia is
one of the top 20 countries where doing business is very easy and operates.

Social and cultural Factors of Saudi Arabia:
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The social and culture factors are totally interrelated with the traditions and
the practices of Islam. The people of here were very poor in the past 3
decades. But due to the grooming industry and development works in the
country people are getting attractive life style here. Now people are engaging
with the acts of the world and contributing in the world renowned activates
and the event aggressively and with effort. Saudi Arabia has its own football

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the light of the different factors that may cause our launch of MacDonald in
the country.

Politics of the Pakistan:

Pakistan has a democratic structure for its government. It is named as

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Islamic republic of Pakistan. It has a federal republic system of government.
It has two legislations, Upper and lower house. President and the prime

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ministers are the executives of the country. There is huge number of
political parties in the country. Pakistan is a country that is facing political
instability till the time it has been founded. Three martial laws have been
implemented in the country. From 1947 till now Pakistan has the 35 years

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of military rulers. Similarly it is very rare in Pakistan that a part get it major
majority in the legislation houses. Governments are very uncertain in the
Pakistan. In the history of 61 years of Pakistan, only one government
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complete it tenure of five years. It is seen rather the assemblies are dissolved
or the martial law was implemented before the time of tenure. Similarly
Pakistan has ethnic conflicts within its provinces. In last 8 years Pakistan
has been in great trouble due to terrorist activities of Taliban and Al-Qaida.
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Many of suicide attacks, bomb blast and terrorist activities occurred due to
Pakistan’s policies against al-Qaida and its support to USA. Due to these
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reasons Pakistan is very unstable in last 8 years. Pakistan also has
uncertainty on its borders too. Pakistan and India has done three wars with
each other due to unresolved Kashmir and water issue. So their remain a
tension on each other borders but now the politicians are trying to resolve
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these issues like Kashmir and water by dialogue.

Economy of the Pakistan:

Pakistan is a very poor country in 1947, despite this fact, Pakistan’s
economic growth rate was better than the global average in its first four
decades, but weak policies led to a slowdown in the late 1990s. The
economy of Pakistan has many fruitful natural resources. Pakistan is also
very famous for its agro products like best cotton and rice in the world. But

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if we see the development of Pakistan, It is very slow. In last three years
Pakistan is in a great recession due to the terrorist activities and the weak
trust of the foreign investments in Pakistan. Due to the global crisis of 2008,
a large inflation rate of 24.4% is seen in Pakistan and a low savings rate,
and due to other economic factors, it has become difficult to sustain its

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growth. Similarly a huge unemployment is seeing in last few years. The
doing business status of Pakistan is at 77th number among 181 countries.
That is very low to take a risk to start a business. Similarly there is a huge

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corruption in the country. At the same level, the new investors have to face
many problems in Pakistan to launch a business now a day due to political
instability and war against terrorism.

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Social and cultural Factors of Pakistan:

Pakistani has a social hierarchical system, with high influence of the
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traditional Islamic values; despite this fact Pakistan has strong traditional
joint family structure. A lot of social and family constraints are embedded
with its basic culture. If we see rationally, Pakistan is a country that has
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strong cultural values that was developed by the Muslim Mughal emperors.
Pakistan has four big provinces and a number of languages are spoken in
Pakistan. Except the values of Islam, regionally Pakistan has many diverse
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values in different areas. For example we see, above 30 languages are
spoken in Pakistan. The people of the Pakistan have a guest respecting
nature. People always love to have entertainment and love for each other.
Education level of Pakistan is very low. Literacy rate is about 37% according
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to the survey by the ministry of education of Pakistan in 2008. While in the
big cities like Lahore, Islamabad and Karachi literacy rate is up to 82%
according to this survey. A lot of companies like pizza hut, KFC and subway
are doing their businesses in major cities. People of big cities love to visit
parks, joy lands and such fast foods restaurants of the cities.

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Technological factors of Pakistan:

Being a developing country Pakistan has developed its technological needs
for the local industry too much extent. But still that is not enough to fulfill
the necessities of the industry. Pakistan does a lot of export for the

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machinery from other countries to develop its industry that is still in
developing face.

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Brief Comparison between both economies

The table below shows the brief comparison between these two countries on

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the basis of findings of my research. This really depicts the differences in
both countries that will help us to draw a conclusion for the MacDonald to
implement its real objectives in a specific country.
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Pakistan Country Saudi Arabia
federal republic Government monarchy
25.795.938 note: includes
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159.196.336 (July 2004 Population 5.576.076 non-nationals
est.) (July 2004 est.)
Purchasing power parity - GDP Per Purchasing power parity -
$2.100 (2008 est.) Capita $11.800 (2008 est.)
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Southern Asia. Bordering
the Arabian sea. between Middle east. Bordering the
India on the east and Iran Location Persian gulf and the red sea.
and Afghanistan on the north of Yemen
west and china in the
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north

total: 803.940 sq km land: total: 1.960.582 sq km
778.720 sq km water: Area water: 0 sq km land:
25.220 sq km 1.960.582 sq km

Mostly hot. dry desert; Harsh. dry desert with great
temperate in northwest; Climate
temperature extremes
arctic in north

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Punjabi 48%. Sandi 12%. siraiki
(a punjabi variant) 10%. pashtu
8%. urdu (official) 8%. balochi

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3%. hindko 2%. brahui 1%. Languages Arabic
English (official and lingua
franca of Pakistani elite and
most government ministries).
burushaski. and other 8%

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Conclusion

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In the previous section we have discussed both countries on the basis of the
political, economical, social and technological factors. According to the
political constraints of both countries we have fond that Saudi Arabia is a
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country that has stable political structure that is able to rely on while in the
Pakistan it is very different. Pakistan political structure is very unreliable.
There is huge risk of terrorism, political and peace situations. Similarly
Saudi Arabia has a strong economy as compare to the Pakistan. Saudi
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Arabia is a wealthy country where the GDP per capita is about $467,700 as
compare to the GPD per capita of Pakistan of $160,800 according to CIA fact
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book 2008 that shows a huge difference between these two countries. As the
purchasing power parity of Saudi people is stronger than Pakistani people.
At the same level Pakistan rupee currency is much devalued so it will be
tough for Pakistani person to purchase a burger of $2 that becomes equal to
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Pakistani 200 rupees that is a considerable amount for a Pakistani. On the
other side of coin, it is not very much expensive to buy a $2 burger in Saudi
Arabia. If we analysis on the basis of doing business we would find that it’s
very easy to launch and continue a business in Saudi Arabia as compare to
Pakistan as rankings from the Doing Business 2009 report, covering the
period April 2007 to June 2008. According to this report it is also mention
that tax rates in Pakistan and Saudi Arabia has a huge difference that is
also a point for the MacDonald to consider. Pakistan is at 124th number and

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Saudi Arabia is at 7th number. 1 is for most low rates and 180 are for most
high rates rank for paying tax. If we see in the reference of the social and
cultural level, it is very tough for the MacDonald to launch a single strategy
for the Pakistani environment as there are a lot of languages are spoken and
very diverse culture that varies according to the distances within the

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country. As Saudi Arabia has one language spoken in the whole country and
almost have the same culture in the whole territory. So it becomes very easy
for the Saudi Arabia context to launch a single strategy for the whole

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country. Technological factors are also very open for the MacDonald that
Pakistan is a developing in technology and industry, on the other side Saudi
Arabia has much more expertise in this level as compare to Pakistan. As a

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whole I suggest MacDonald to launch its operation in Saudi Arabia at first
due to the suitable, flexible and profitable factors in the economy based
upon my research findings.
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References

 McClatchy-Tribune (2009) Saudi business outlook brightens [Arab
News, Jeddah, Saudi Arabia]

 Economist Intelligence Unit ViewsWire (Jul 10th 2009) Pakistan's

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economy remains in bad shape, despite emergency help from the IMF
(www.economist.com)

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 The Saudi network (Saudi government)
http://www.the-saudi.net/saudi-arabia/government.htm

 Official web gateway to the government of Pakistan:
http://www.pakistan.gov.pk

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
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CIA World Fact book (September 2008)

U.S. Dept. of State Country Background Notes (February 2008)
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 The rankings are from the Doing Business 2009 report, covering the
period April 2007 to June 2008.
http://www.doingbusiness.org/EconomyRankings/
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 MacDonald official website
http://www.mcdonalds.com/
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