CASE STUDY -1

MCDONLAD'S- SERVING FAST FOOD AROUND THE WORLD Ray Kroc opened the first McDonald's restaurant in 1955. He offered a limited menu of high quality, moderately priced food served in spotless surrounding. McDonald's QSC&V (quality, service, cleanliness and value) was a hit. The chain expanded into every state in the nation. By 1983, it had more than 6,000 restaurants in the United States and by 1 995 alone, the company built 2,400 restaurants and by 2001, it had more than 29,000 restaurants in 121 countries. In 1967, McDonald's opened its first restaurant outside the United States, in Canada. Since then, international growth has been accelerating. In 1995, the "Big Six" countries that provide about 80 percent of international operating income are: Canada, Japan, Germany, Australia, France and England. Yet fast food has barely touched many cultures. The opportunities for expanding the market are great, as 99 percent of the world populations are not yet McDonald' s customers. For example, in China, with a population of 1 .2 million people, there were only 62 McDonald's restaurants in 1995. McDonald's vision is to be major player in food services around the world. In Europe, McDonald's maintains a small percentage of restaurant sales but commands a large share of the fast-food market. It took the company 14 years of planning before it opened a restaurant in Moscow in 1990. But the planning paid off. After the opening, people were standing in line up to 2 hours for a hamburger. It has been said that McDonald's restaurant in Moscow attracts more visitors- on an average 27,000 daily-than Lenin's mausoleum (about 9,000 people) which used to be the place to see. The Beijing opening in 1992 attracted some 40,000 people to the largest (28,000 square-foot) McDonald's restaurant in China at a location where some 800,000 pedestrians pass by every day. Food is prepared in accordance with local laws. For example, the menus in Arab countries comply with Islamic food preparation laws. In 1995 McDonald's opened its first kosher restaurant in Jerusalem where it does not serve dairy Products. The taste for fast food, American style is growing more rapidly abroad than at home. McDonald's international sales have been increasing by a large percentage every year. Every day, more than 33 million people eat at McDonald's around the world with 18 million of them in the United States. The prices very considerably around the world ranging from $4.90 in Switzerland to 1.23 in the Philippines for the Big Mac that costs in the United States $2.90. The Economist magazine even devised a Big Mac index to estimate whether a currency is over or undervalued.'5 For example, the $1.26 Ghinese Mac translates into an Implied Purchasing Power parity of $3.59. The inference is that the Chinese currency is undervalued. Here are other price comparisons for the $2.90 U.S. Big Mac: Chile $2. 1 8, Euro area $3.28 (Weighted average of member countries), Hong Kong $1.54, Japan $2.33, Mexico $2.08, Peru $2.57, Singapore $1.92 and Thailand $1.45. Its traditional menu has been surprisingly successful. People with diverse dining habits have adopted burgers and fries wholeheartedly. Before McDonald's introduced the Japanese to French fries, potatoes were used in Japan only to make starch. The Germans thought hamburgers were people from the city of Hamburg. Now, McDonald's also serves chicken, sausage and salads. One of the items a very

different product, is pizza. In Norway, McDonald's serves grilled salmon sandwich, in the Philippines pasta in a sauce with further bits and in Uruguay, the hamburger is served with a poached egg. Any new venture is risky and can be either a very profitable addition or a costly experiment. Despite the global operation, McDonald's stays in close, contact with its customers who want good taste, fast and friendly service, clean surroundings and quality. To attain quality, so- called Quality Assurance Centers are located in the US, Europe and Asia. In addition, training plays an important part in serving the customers. Besides day-to-day coaching, Hamburger Universities in the Us, Germany, England, Japan and Australia, teach the skills in 22 languages with the aim of providing 100 percent customer satisfaction. It is interesting that McDonald's was one of the first restaurants in Europe to welcome families with children. Not only are children we1comed,~but in many restaurants they are also entertained with crayons and paper, a play land and clown Ronald McDonald, who can speak twenty languages. With the generally aging population, McDonald's takes aim at the adult market. With heavy advertising (it has been said that McDonald's will spend $200 million to promote the new burger) the company introduced Arch Deluxe on a potato-flower bun with lettuce, onions, ketchup, tomato slices, American cheese, grainy mustard and mayo sauce. Although McDonald's consider the over-50 adult burger a great success, a survey conducted five weeks after its introduction, showed results. McDonald's golden arches promise the same basic menu and QSC&V in every restaurant. Its products, handling and cooking procedures and kitchen layouts are standardized and strictly controlled. McDonald's revoked the first French franchise because the franchise failed to meet its standards for fast service and cleanliness, even though their restaurants were highly profitable. This may have delayed its expansion in France. The restaurants are run by local managers and crews. Owners and managers attend the Hamburger University near Chicago or in other places around the world, to learn how to operate a McDonald's restaurant and maintain QSC&V. The main campus library and modern electronic classrooms (which include simultaneous translation systems) are the envy of many universities. When McDonald's opened in Moscow, a one-page advertisement resulted in 30,000 inquiries about the jobs; 4000 people were interviewed and some 300 were hired. The pay is about 50 percent higher than the average Soviet salary. McDonald's ensures consistent products by controlling every stage of the distribution. Regional distribution centers purchase products and distribute them to individual restaurants. The centers will buy from local suppliers if the suppliers can meet detailed specifications. McDonald's has had to make some concessions to available products. For example, it is difficult to introduce the Idaho potato in Europe because of the special soil requirement. McDonald' s uses essentially the same competitive strategy in every country: Be first in a market and establish your brand as rapidly as possible by advertising very heavily. New restaurants are opened with a bang. So many people attended the opening of one Tokyo restaurant that the police closed the street to vehicles. The strategy has helped McDonald's develop a strong market share in the fast food market, even though its US competitors and new local competitors quickly enter the market. The advertising campaigns are based on local themes and reflect the different environments. In Japan, where burgers are a snack, McDonald's competes against confectioneries and new "fast sushi" restaurants. Many of the charitable causes McDonald's supports abroad have been

recommended by the local restaurants. The business structures take a variety of form. Sixty-six percent of the restaurants are frank franchises. The development licenses are similar to franchising but they do not require McDonald's investhients. Joint ventures are used when the understanding of the local environment is critically important. The McDonald's Corporation operates about 21 percent the restaurants. McDonald's has been willing to relinquish the most control to its Far Eastern operation, where many restaurants are joint ventures with local entrepreneurs, who own 50 percent or more of the restaurant. European and South American restaurants are generally company-operated or franchised (although there are many affiliates- joint ventures-in France). Like the US franchises, restaurants abroad are allowed to experiment with their menus. In Japan hamburgers are smaller because they are considered a snack. The Quarter Ponder didn't make much sense to people on a metric system so it is called a Double Burger. Some German restaurants serve beer; some French restaurants serve wine. Some Far Eastern McDonald's restaurants offer oriental noodles. In Canada, the menu includes cheese, vegetables, pepperoni and deluxe pizza; but these new items must not disrupt existing operations. Despite its success, McDonald's faces tough competitors such as a Burger King, Wendy's Kentucky Fried Chicken and now also pizza Hut with its pizza. Moreover, fast food in reheat able containers is now also sold in supermarkets, delicatessens and convenience store and even gas stations. McDonald's has done very well, with a great percentage of profits coming now from international operations. For example, McDonald's dominates the Japanese market with 1,860 outlets (half the Japanese market) in 1996 compared to only 43 Burger King restaurants. However, the British food conglomerate Grand Metropolitan PLC, which owns Burger King, has an aggressive strategy for Asia. Although McDonald's has been in a very favorable competitive position; by 2001 the customer satisfaction level have been below that of its competitors Wendy and Burger King.'6 In China, KFC is more popular than McDonald' 5~17 Some observers suggest that McDonald's expanded too fast and that Burger King and Wendy's have tastier meals.18 It is Mr. jack Greenberg `s (the McDonald's top manager) task to change things around. Questions:1. What opportunities and threats did McDonald's face? Hid did it handle them? Whatalternatives could it have chosen? 2. Before McDonald's entered the European market, few people believed that fast foodcould be successful in Europe. Why do you think McDonald's succeeded? What strategies did it follow? How did these differ from its strategies in Asia? 3. What is McDonald's basic philosophy? How does it enforce this philosophy andadapt to different environments? 4. Should McDonald's expand its menu? If you say no, then why not? If you say yes, what kinds of products should it add? 5. Why is McDonald's successful in many countries around the world?

CASE STUDY - 2
Analyze the following case carefully and answer the question given at the end:

Vikas Pvt. Ltd., an engineering firm with 50 years of success behind it has become a household name in India for its quality products. Although it had started its business in a modest way, it became a dominant supplier of spares and equipments of critical nature needed by the Transport and Engineering Industries in a short span of 10 years. Later, with the advent of industrial planning initiated by the Government of India, and by virtue of its position in the engineering business, it made rapid strides in many product lines, including electronics. In 1960, its assets were of the order of Rs. 200 crores with a total employment of over 1 0,000 spread over, all important industrial centers in India. With the growing complexity of management, the top management, time and again, discussed the need for reorganizing the entire business on functional lines, and finally introduced decentralized administration on April 1 , 1974. Mr. Vasudeva, an MBA graduate from Harvard with a Mechanical Engineering background was in charge of the Mechanical Engineering Section since 1964. He was promoted as the Chief Executive of the Division in April 1 974. This was in recognition of his outstanding contribution to the development of new product lines, especially in the area of compressor-cum- vacuum pumps. In fact, the firm earned a good name in the export market and also bagged an export award during 1973-74. Moreover, Mr. Vasudeva was known for his honesty, integrity, leadership and decisiveness. He was a brilliant engineer and always worked hard to be a step ahead of his competitors in the field. He was virtually a thing - tank, and the management was very proud of him. For the last six months, he spent long hours redesigning the export model-T compressor- cum-vacuum pump set. In his discussions with his foreign collaborators, he was convinced that with a little more effort, the company could successfully redesign the model, thus saving production costs as well as improving the efficiency by 16-20 per cent. He depended entirely on Mr. Hanuman, a foreman of exceptional ability and tenacity. Moreover, Mr. Hanuman was good at human relations and commanded respect from his immediate subordinates. Since the fabrication of the new model was in its infancy, everyone concerned felt it undesirable to let others know what was happening on the shop-floor. Moreover secrecy was the style of operation, and therefore it was clear to both the foreman and the persons working under him that this matter would not be brought to the notice of Mr. Keshav, the new Works Manager, and a recent induction into the company. They were one with their new job and always delighted in any words of appreciation from their chief, Mr. Vasudeva, when he visited the shop-floor. Mr. Keshav, was young and energetic with a flair of Mechanical engineering products. He had no knowledge of management; hut had attended a few courses in materials management and productivity control. He always laid stress on proper supervisory activities, knew his job well and always expected others to perform their duties as scheduled. He could never tolerate indiscipline. His colleagues had nicknamed him "the real fire-brand" of the company. One evening, before going home, Mr. Keshav went to the shop-floor where he found six machinists, and helpers engaged in fabricating a spare part of the pump set as

per the order of Mr. Vasudeva. Mr. Kesav was happy to see people working under him so involved in their work. However, his enthusiasm vanished like morning mist when he saw that, what they were engaged in was not a normal part of their work. "Damn it. What the devil are you up to the asked in annoyance. The workers were perplexed, they did not know what to say. However, Mr. Hanuman soon appeared on the scene and explained the on-going project and the benefit its success would bring. The Works Manager got very angry with Hanuman and reprimanded him severely. In fact, he was admonished in the presence of his subordinates and technicians working on the shop-floor. Mr. Hanuman felt confused and hurt. As though this was not enough he received a show cause notice from the Works Manager demanding an explanation within 24 hours. This was adding insult to injury. He had no alternative but to report to the chief, but to his chagrin, he found that Mr. Vasudeva had already left on foreign tour and was expected back a month later. Mr. Hanuman felt that he was approaching a dead end, harassed, he went from pillar to post no help or advice was forthcoming. Exasperated and hurt he went to the General Manager and handed him his resignation letter. Mr. Hanuman was known for his honesty, simplicity and hard work. Only by the dint of hard work, had he developed his skills and risen to the position of foreman from the level of an ordinary helper within a span of 10 years. Everyone knew the role he played in developing a new prototype of Model-T, vacuum pump set. His one weakness was that he was very sensitive and would never compromise on issues affecting his personality and dignity. On the whole, he was respected by all. News of his resignation spread like a wild fire. The workers, technicians and others Sympathetic to his cause were alarmed, and eagerly awaited the outcome. The issues arising from the case are: 1. Was the GM right in accepting Mr. Hanuman's resignation? 2. Was it well advised to keep Mr. Keshav in the dark about the on-going project, especiallysince he was the Works Manager? 3. Did Mr. Keshav act hastily in reprimanding Mr. Hanuman? 4. What action should be taken now? 5. What repercussion would this incident have on all involved?