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McDonalds

International Market
Analysis & Entry Plan


By Rebecca Olson
May 25, 2014


Potential Countries


Business
Climate
Rating
Country
Risk
Assessment
Market
Potential
Ranking
Trade
Policy
Brazil A4 A4 20 Positive
Russia B B 15 Positive
India B A4 7 Neutral
China B A3 1 Positive
South
Africa
A4 A4 70 Positive
South
Korea
A2 A2 10 Neutral
Japan A1 A1 3 Positive

McDonalds needs to focus on the global market in order to expand its fast food
chain. In order to identify which countries to further analyze, I looked at business
climate, country risk, market potential, and trade policy. Business climate identifies
which countries have governments and institutions that are in favor of growing
businesses. The best in this category were Japan and South Korea. Next, I analyzed
country risk. This looks at which countries have promising economic, financial, and
political aspects. Again, Japan and South Korea were the top prospects. Market
potential ranks countries according to market size, intensity, growth, consumption
capacity, and receptivity. It also gauged infrastructure, economic freedom, and country
risk. Even though South Korea yielded a high ranking of ten, China and Japan are the
top with China at number one and Japan at number three. Lastly, I looked at whether
the trade policy for each country was positive, neutral, or negative.

Trade regulation can be key to how well McDonalds will do in a country, since
some trade restrictions will keep McDonalds from operating efficiently and
implementing desired business strategies. When I evaluated each countrys trade
policy, I determined if the country would look positively towards McDonalds entering the
country. The Brazilian government has trade negotiations with the EU, and is pursuing
free trade with many countries. Russia has a strong trading relationship with the US,
and they have high import growth. India has reformed some trade regulations, but
further reformation might not happen. The tax structure is not favorable for McDonalds,
but import quotas are eliminated and customs has been lowered. In China, US imports
have reached an all-time high in 2010, and they are the third-largest market for US
exports. South Africa, like India, has reformed its trade system. It eliminated high tariffs
and started promoting competition in its economy. US products have the most-favored-
nation tariff rates in South Africa. South Korea has a weak financial market, but it has a
free trade agreement with the US as of 2011. Japan promotes foreign trade, since the
country has very few natural resources.
Another consideration is industry sector. The food and beverage industry is not
highly fragmented nor highly concentrated; rather, it leans slightly towards fragmented
because a few companies divide production in the food industry. Its demand is driven
by demographic trends along with consumer tastes, and its profits are affected by a
diverse product mix, quick operation, good service, and strong marketing strategies.
This industry focuses on manual labor, and it is the most capital averse industry.
I will focus on China and Japan for in-depth analysis. Chinas business ranking
was comparatively weak, but its risk, market potential, and trade are very positive.
Japan ranked the best in business and risk, and it is strong in market potential and
trade.


Analysis: China

Analysis: Japan

Political Environment
Chinese Communist Party
Authoritarian
Citizens can potentially influence
government decisions
All citizens must accept Chinese
communism
NPC is the primary government
entityit meets annually to discuss
policies and political changes
Standing committee is a cabinet
Political Environment
Constitutional monarchy
Parliamentary government consisting
of a House of Representatives and a
House of Councillors
Bill of Rights similar to United States
Emperor is a symbol of the state
Seven major political parties:
Democratic Party of Japan, Social
Democratic Party, Peoples New Party,
Liberal Democratic Party, New Komeito
that has power over states
Other primary government entities:
Politburo, Secretariat, military, and
discipline inspection
Government role is ensuring
Chinese Communist Partys views
are enforced
Citizens are overall accepting of the
Chinese government and political
beliefs, since the government
system is strong
Legal System
Over 800,000 meditation
committees are made up of chosen
citizens who resolve almost all civil
disputes and some criminal cases
Chinese law requires human rights
and due process, but it is commonly
disregarded by law enforcement
Overall modern law system
consisting of lawyers, judges, and
prisons
PRC laws punish government
bribery and acting passively
towards others engaging in it
Laws against commercial bribery
punish individuals and companies
Trademarks must be registered for
protection
Piracy is common, even though
laws are in place against it
Intellectual property laws are similar
to the US, but they are not enforced
well.
Trade
Third-largest US export market
Member of the WTO
Preferential tariff agreement
between the US and China
Both foreign and domestic
enterprises pay tax
Some import quotas and licensing
are in place, but not for the
restaurant industry

Party, Japan Communist Party, and
Your Party
Suffrage is any citizen over 20 years of
age
Stable system due to open political
beliefs
Governments role is to create and
enforce laws and safety for the
betterment of society



Legal System
Aspects of customary law, civil law,
and US common law
Several levels of courts
Supreme Court similar to US
No jury system, administrative courts,
or claims courts (instead, pre-existing
laws determine claims)
Japanese Patent Office accepts
trademarks, exclusive licenses, and
patents
Uses International Classification
System for trademarks
Copyright system is similar to US
Unfair Competition Prevention Act and
Penal Code criminalizes bribing
officials
National Public Service Ethics Act
prevents corruption in general
Companies Act restricts bribing in the
private sector for example, it is
against the law to bribe an auditor

Trade
Japan has little natural resources, so it
depends on foreign trade
Member of the World Trade
Organization
Imports are subject to Customs and
taxing
Customs follow the lower of the WTO
rate, Singapore rate, and General rate

Chinas political and legal environment are
very different from the US. McDonalds needs to
abide by the Chinese Communist Party, which
must be thoroughly researched to ensure
McDonalds doesnt break laws in this foreign
market. Since China unregistered trademark is
not recognized, McDonalds should register a
trademark to the Chinese government to ensure
their brand is protected. The brand may still run
into trouble with its intellectual property.
Fortunately, China is a large US export market.
The tariff agreement and lack of quotas looks
promising for McDonalds entering the Chinese
market.

Japan has a similar political, legal, and
regulatory environment to the US. Its government
supports human rights that our Constitution asserts.
The legal system ensures that McDonalds company
will be safe from piracy and fraud. Japan also
supports a free market and welcomes imports.

Economy (2013)
GDP (purchasing power parity):
$13.39 trillion
GDP Growth Rate: 7.7%
Disposable income per Capita:
$3000
Income distribution: 47.3
Labor force: 797.6 million
Unemployment rate: 4.1%
Principle industries: mining, metals,
machine-building, armaments,
textiles, chemicals, various
consumer products
Foreign investment abroad: $541
billion
Exports: $2.21 trillion
Exchange rates: 6.2 RMB per 1 US
dollar
Inflation: 2.6%
Entry and Financial Conditions
Import regulations support US
businesses
Regulations encourage foreign
direct investment with 100% of
ownership from a different country
Tax rate is 17% along with possible
provincial tax
Labor laws are attractive to
businesses because they allow low
wages and limit strikes
Economy (2013)
GDP (purchasing power parity): $4.729
trillion
GDP Growth Rate: 2%
Income per Capita: 46.731
Income distribution: 37.6
Labor force: 65.62 million
Unemployment rate: 4.1%
Principle industries: technology such
as vehicles, electronics, machines;
metals, ships chemicals, textiles,
processed food
Foreign investment abroad: $1.179
trillion
Exports: $697 billion
Exchange rate: 97.44 yen per US
dollar
Inflation: 0.2%

Entry and Financial Conditions
Imports are not heavily regulated
Japanese government believes in
globalization
Japan attracts all foreign companies
through its foreign direct investment
Consumption tax is 5%
Postwar baby boom corrupts labor,
since that generation is retiring

Japan has a promising economy, with

Chinas economy is successful overall,
with a relatively low unemployment rate and high
GDP growth rate. Due to the low disposable
income per capita, the large number of citizens
may want an inexpensive restaurant to dine at.
China supports imports with 100% foreign
ownership along with minimal labor laws, so
McDonalds has more potential to save money
than if it decided to invest in another country.
relatively low inflation and unemployment rates. The
Japanese government encourages global trade, so
McDonalds could easily import to Japan. Its tax is
lower than Chinas, and it has more humane labor
laws.

Demographics
Population: 1.356 billion
Growth rate: 0.44%
Age: 17.1$ 0-14 years; 14.7% 15-24
years; 47.2% 25-54 years; 9.6% 55-64
years; 9.4% over 64 years
Sex: 1.11 male to 1 female at birth
Geographic areas: Diverse climates
tropical to sub-arctic; mountains, deserts,
and plains
Ethnic groups: 91.6% Han Chinese
Psychographics
Interest/opinions: Prefers buying local and
domestic, but will pay more for safer,
regulated, international brands
Culture: Overall poor countryspends
frugally and focuses on needs rather than
wants




Social Institutions
Family: Men protect the family, control
decision-making, pay for childrens
upbringing and education, are the only
sources of lineage, and consult elders
about important decisions; women stay
are housekeepers traditionally, but many
modern wives have careers; marriage and
children are very important, and children
must obey their parents or their parents
could legally murder them
Education: 95% age 15 and over can read
and write; school life expectancy is 13
Demographics
Population: 127 million
Growth rate: -0.13%
Age: 13.2% 0-14 years; 9.7% 15-24 years;
38.1% 25-54 years; 25.8% 55-64 years;
24.8% over 64 years
Sex: at birth, 1.06 males per 1.00 female
Geographic areas: 70% mountains, 200
volcanoes,
Ethnic groups: Japanese is 98.5% of
population
Psychographics
Activities: Manga/anime, karaoke, sumo
(national sport),
Interest/opinions: Healthcare and education is
highly valued. Literacy is nearly 100%, and
life expectancy is very high
Culture: Smoking is widely accepted; slippers
are much more common inside homes, and it
is important to take shoes off when stepping
into a home; washlets and floor toilets are
common
Social Institutions
Family: Mother primarily raises children;
husband works and gives wife most of his
salary; wife controls household finances; ritual
and cleanliness is important; 3 generations in
one household is common in the country;
globalization is changing tradition and
heading towards US family living
Education: 3.8% of GDP, and 99% age 15
and over can read and write. School life
expectancy is 15 years
Religion: 83.9% Shintoism, 71.4% Buddhism,
9.8% other. Many belong to both Shintoism
years
Religion: 52.2% unaffiliated, 18.2%
Buddhist, country is officially atheist
Aesthetics: Tradition values aesthetics;
visual and musical art transform the heart
Diet: Vegetables can be their own meals;
rice and soup is popular; eating until
theyre full, then stopping; yin and yang
incorporates wet/moist food with dry/crisp
food
Housing: City lifestyle means renting a
small apartment; rural lifestyle entails a
small farmhouse
Clothing: Western clothing is most
popular, but traditional is commonly
accepted
Healthcare: 5.2% of GDP; sanitation
needs improvement


Language
Official: Standard Chinese/Mandarin, with
the official dialect being Putonghua
Buying habits: Price is suggestion and
customers can haggle; shopping is very
frugal, but consumers may save up for
expensive, well-known brand items

Chinas huge population and hurried lifestyle
are favorable to McDonalds. The company
needs to be aware of Chinas difference in food
taste and incorporate the lack of meat along with
a yin/yang in its meal options. The safety and
sanitation of McDonalds food might draw
consumers there as well.

and Buddhism
Aesthetics: Wabi-sabi is a philosophy that
exhorts imperfections are more beautiful than
perfections; Miyabi is about elegance and
eliminating all vulgarity; Shibui means simple
or subtle, meaning beautiful things speak for
themselvesmany other principles are
important to the Japanese, and they value
aesthetics
Diet: vegetables, seafood, noodles, rice, raw
meat, coffee, lack of dairy
Housing: Small and commonly rented in the
city; raised entryway signals taking off shoes
and putting on slippers; most things are what
the US considers traditional
Clothing: Typically Western clothing, but
traditional Japanese clothing is accepted as
well
Healthcare: 9.3% of GDP
Language
Official: Japanese is spoken and written, but
writing styles include Romaji, Katakana,
Hiragana and Kanji
Buying habits: Similar to West; buy less in
bulk due to small living space; appreciate
discounts; down economy brings hesitance to
spend more than needed

Japans culture is crucial towards reaching the
Japanese market. McDonalds needs to understand
their subtle yet noticeable differences such as toilet
features and writing style use. If McDonalds
understands Japanese lifestyle such as family and
interests, the company can create a marketing
strategy that reaches them effectively.


Technology
Top country in amount of both main line
and cellular phone usage
All broadcast/internet overseen by the
Communist Party of China
389 million internet users
Considered science and technology
superpower according to the Guardian
(2013)collaborates and competes with
Technology
64 million main line and 138 million cellular
phones
Mix of public and commercial broadcasting
with a variety of choices
99 million internet users
Top companies innovate technology
Government implements plans to innovate
technology and science
the US
Worlds fastest supercomputer
Government procurement for technological
innovation
Weak in internet technology/security

McDonalds will have to go through the
government in order to advertise on television,
radio, or the internet. Many citizens understand
how to use technology, and China has potential
for technology development.

Known globally for new technologies

Japan is an ideal country for technology, so
McDonalds will easily find ways to advertise its
product. Consumers may expect the company to
implement new technologies in restaurants, so
McDonalds will need to invest in technological
research.

Market Potential
Overall, China has a strong market
potential. It has a large population of consumers
who appreciate low cost, which is already a
priority for McDonalds. Another benefit is that
trade is open and inexpensive. The barriers
McDonalds will have to overcome are
understanding the Chinese Communist Party.
The company will have to look at its regulations
and understand how it oversees media in order
to advertise. McDonalds will also have to modify
its menu choices to fit the tastes of Chinese
consumers, since they are accustomed to
primarily vegetables and rice.
Market Potential
Japans market potential is very high, since it
has many potential consumers and a supportive
economic system. Its political system and economic
structure are similar to the US, and its consumers
overall understand Western culture. Japanese
culture is similar to ours, but McDonalds needs to
research subtle yet noticeable differences.
McDonalds will not have trouble finding ways to
advertise, but the company should innovate
technology to fit Japanese company expectations.

Competitor Analysis
Ajisen Holdings
Ramen restaurant founded in Japan
Growing steadily throughout China
Much smaller than McDonalds with less
than 15,000 employees
Imports menu items
Dicos Food Development
Over 2000 restaurants in China
Trying to become Chinas top franchise by
2030
Yum! Brands Restaurants
Large global entity
KFC, Pizza Hut, and Taco Bell
Focusing on strategic growth in China

Domestic restaurants in China are
comparatively small to McDonalds, despite
Dicos attempts to become Chinas top franchise.
Competitor Analysis
Mister Donut
Sales equivalent to McDonalds dollar menu
Duskin Co. owns sales and trademark rights
in Asia
Over 1,100 Japanese locations
MOS Burger
Known for fresh produce
Over 1,400 Japanese locations
Yum! Brands Restaurants
Many menu items are made in Japan
Large global entity
KFC, Pizza Hut, and Taco Bell

Despite its attempts, McDonalds has
struggled with the public perceiving it as a healthy
option. MOS burger has the upper hand in this
factor. Yum! Brands is McDonalds direct
competitor, and both have large financial resources
McDonalds has more money and resources,
which is a huge advantage. Import costs would
not have a detrimental impact on revenue. Since
McDonalds is competing with global company
Yum! Brands, the challenge lies at having
Chinese consumers perceive McDonalds as the
better option.


and well-known brand names. These competitors
are strong, so McDonalds needs to understand how
to create better value than its competitors.


Recommendation
China would be the optimal country for McDonalds to focus on. Its risk, market
potential, and trade policy are ideal. China has a cheap import tax rate and supportive
import regulations, along with a tariff agreement with the US. China encourages foreign
direct investment and 100% ownership, and the country has labor laws that allow low
wages and limit strikes. These will increase McDonalds revenue in China. Consumers
of China enjoy being frugal with money, so McDonalds low prices will appeal to them.
The massive use of technology will allow McDonalds to implement a variety of
advertising strategies, which will be important to reach the huge population.
The disadvantages for entering China include primarily submission to the
Chinese Communist Party. McDonalds will have to go through the government to
advertise on Chinese media. McDonalds will also have to understand the new laws
and government system it will encounter in this new market. Its strongest competitor is
Yum! Brands, which is a large global entity like McDonalds. McDonalds will need to
focus on proving it has better value than its competition.
Japan has a wonderful potential market, but it is much smaller than China.
Japan has a familiar government structure that allows for a free market. It also supports
foreign trade since the island has little natural resources. Competition is strong, with
many US-based fast food restaurants already in place. Chinas little competition,
business-friendly regulations, and value-seeking consumers will make a great fit for
McDonalds.










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