Discuss about the McDonalds in Nepal for Macro and Overseas Analysis.
Nepal happens to be a landlocked nation located in South Asia. The primary religion in Nepal is Hindu. The state prioritizes and values tourism as it helps in poverty eradication thus promoting growth. In penetrating such a market where beef is considered a blasphemy is quite challenging for McDonald’s. (McDonald’s, 2018) The primary motive of the company is to get involved in Nepal’s culture so that it can impact on the food experience for the consumers in Nepal.
With the KFC moving in Nepal and has several outlets that are located in places such as Kathmandu and Lalitpur, seems obvious that McDonald’s a fast food chain may decide to move its premises to Nepal. However, McDonald’s is a big outlet and biggest in this industry, Nepal, on the other hand, is a small country and locating its premises in Nepal should be considered a risky affair.
Some elements such as tax rates that vary in different countries affect the operation of the business. This is particularly important for companies such as McDonalds which plans on using franchising in penetrating Nepalese market.
The rate of economic growth is also essential as it determines the purchasing power of consumers which affects the purchase of goods and services. Political stability is also another crucial element in determining the prosperity of business operations.
New forms of government ascribe to various policies that impact on business operations. The change of people’s lifestyles affects demand for goods and services which can affect McDonalds.
It is crucial for companies to be cognizant of tax rates as they can affect business operations by either increasing the cost of production or lowering such costs (Aliyachandra, 2013). The level of GDP is also important as it tells the business of the purchasing power of such an economy (Bush, 2017). GDP in Nepal is reported to have increased from 7.5% as per 2016 compared to 2015. The rate of growth of GDP stood at 4.4% between 1992-2016. The inflation rate, on the other hand, was estimated at 4.5% in 2016. The government of Nepal accepts and welcomes foreign direct investment, and the state has implemented several laws in the past few months with regards to foreign direct investment to improve the investment climate.
Nepalese are considered to be patriotic and this is important as it may impact the company (Market Research Report, 2011). With changes in the tax policies may impact on the business franchise. Business operations are influenced by government policies. As such McDonald’s may be impacted by the rules imposed by the state.
McDonald’s has been associated with success in every market they penetrate due to different strategies that seem to work perfectly in certain environments (Agee, 2018). The company strategizes on a set of meals that appeals to particular markets and this makes McDonald’s response to the tastes and preferences of the locals.
Businesses decide to establish strategic international alliances due to many motives. However, one of the reasons and most crucial is that so that they can have access to the resources and knowledge of the other company (Boylan, 2014). Also, companies decide to combine forces so that they can develop new commodities or penetrate markets that are new yet difficult to enter due to bureaucracy and huge risks involved in the initial process (Bush, 2017). During the process of acquiring new skills and resources, businesses cooperate on such projects and share either skill that is not to be sold.
Normally, one partner usually has technological expertise and the power to keep abreast of any evolving advancements in technology (Buckley, 2009). What such a partner needs from the other partner is service networks, well-established market, and channels of distribution. As such, each partner requires the other partner to provide vital inputs and thus uses such partnership in extending their skill set into areas that are fresh and new.
A strategy such as exporting accords both small and large firms the opportunity to benefit from global trade. One of the potential and hope associated with exporting is that substantial revenue and profit opportunities are real in foreign markets for most businesses in most industries. Exporting also enables such firms to achieve economies of scale thus lowering costs associated with production per unit.one of the sole reasons why small and medium firms are responsive to exporting is when home markets become saturated, or there is excess production capacity.
However, there are some setbacks associated with exporting and this include failing to have knowledge of competitive conditions in a foreign market. Also, failure to localize the product offering to meet the needs of international customers can affect the company negatively. Lack of a distribution channel that is effective can impede the supply of products.
McDonalds should also collect information from various government agencies can be beneficial in providing data to be used in analyzing export opportunities for McDonalds since it is entering Nepal for the first time. Involving agencies that are tasked with the responsibility of promoting exports is also beneficial (Aliyachandra, 2013).
The use of export management companies by McDonalds exporting for the first time in Nepal can be helpful in identifying and establishing export opportunities thus helping avoid many pitfalls that arise by hiring an EMC. Export management companies as export specialists respond and operate as marketing departments responsible for marketing the exports or departments with international reputations and act on behalf of their client businesses.
As such the EMCs can initiate operations associated with exporting for McDonalds with the knowledge and understanding that the McDonalds will take full control of the activities once it is well established in Nepal. The startup services are undertaken with the knowledge that the EMC will have responsibility for marketing and sell the company’s products in the long-run (C, C, & Udayasankar, 2016). The advantage of using and employing EMCs is the fact that they are specialists that have vast experience and can assist exporters to recognize opportunities and avoid some pitfalls identified as common. However, different EMCs have different qualities. Thus, depending on EMCs entirely means that a firm fails in establishing its exporting potential and infrastructure.
For McDonalds to be successful in its operations in Nepal, it should hire and EMC or find an experienced consultant with the knowledge of experts to assist in identifying opportunities. Also, it is the EMC that can analyze and do the paperwork that is entailed in the export process. It is also crucial for McDonalds to concentrate on one particular market or multiple markets and study what is needed to succeed in such markets before opting to move into other markets.
McDonald’s should also penetrate Nepal’s market on a small-scale basis so that it can reduce the costs associated with any failures that may arise. McDonald’s needs to recognize the time and managerial engagements involved in establishing export sales and as such should employ additional workers to oversee such an operation. McDonald’s should also put more emphasis on developing robust and sustainable relationships with local distributors. The company should also focus on retaining the domestic production.
It is essential to fathom the type of foreign market being ventured into by firms. Some of the crucial variables that are important include the firm’s objectives, the nature of products to be sold and the size of the firm and the resource that are available.
The initial step that McDonald’s should begin in its analysis in Nepal is evaluating the vast economic indicators to attain the impression of the kind of economy the company is seeking to undertake its operations, the extent of the risk and economic potential.
Other components such as aggregate fixed capital formation are vital. The total fixed capital formation sums the gross amount of added capital that has been invested in firms, stores and office premises in a particular year (Buckley, 2009). Thus, the higher the capital investment in a specific economy, then the brighter and greater its potential prospects are probable to be.
The CAGE framework was developed by professor Ghemawat from the Harvard business school and integrated both country and industry level analysis. The acronym CAGE means cultural, administrative, geographic and economic factors. Based on this framework, it outlines the variations in the distance that exists between nations regarding the above elements. It is thus important that McDonalds understand the culture of Nepalese so that it can have an understanding of the foods that people of Nepal consume and those deemed as illegal.
Companies decide to enter the global market for some reasons. One is that such companies face stiff competition from overseas firms in their home markets. Also, it is due to a domestic market characterized by saturation. Such firms may also be striving to establish and attain economies of scale. One of the impediments to expanding in foreign markets is lack of knowledge about foreign markets. In other words, the suitability of international markets relies on its profit potential on a long-run basis.
The appropriate market entry mode will be based on some elements such as the company’s level of experience in global expansion, the characteristics exhibited by the foreign markets and the number of disposable resources. There are some options such as franchising and foreign direct investment with joint ventures in the host country with a firm and a wholly owned subsidiary.
Franchising entails a having and owning a license that is specialized. The franchiser not only agrees to sell the trademark but also stipulates and commands the franchisee to abide by the strict codes of conducting business (Aliyachandra, 2013). The franchiser in this context helps the franchise in doing business on a continuous basis for instance McDonalds. The advantages associated with franchising are identical to licensing. There are low costs and low-risk levels in penetrating the market. The costs associated with setting up and ongoing costs are entirely borne by the franchisee. As such, an incentive exists for the franchisee to initiate a profitable business immediately. It is through adopting such a strategy that a firm gets the chance of building its international presence for instance McDonalds. The main set back with this strategy is that it depends on a brand that can hardly be taken away from the rival though the franchise can emulate the franchiser. As such, McDonalds being new in Nepal market would benefit from establishing strategic alliances with the local food distributors in Nepal as it will benefit from the already established infrastructure making it benefit from the large economies of scale in terms of resources
Joint ventures entail establishing a company that is partly owned by two or more independent firms (D’Alimonte, 2014). Ownership, in this case, is based on specific ratios, and any combinations can be adopted where both firms play a role of contributing managers while sharing control of operations. McDonald’s in such a case would benefit by ensuring that it brings on board some of the skill sets it considers as core and source the missing competencies from a partner as such its operations will not be affected and most important the culture of the firm will be carried on in such a foreign market.
A company’s strategy is referred to a course of action that managers employ in achieving organization’s goals. To maximize the value of the company, managers should follow techniques that increase the profitability of the company and raise its profit margins. Profitability in this context can be explained as the rate of return that a company makes on capital invested.
McDonalds should aim at adding its value in the Nepalese market by availing food products that have been customized to suit the tastes and preferences of people in Nepal. For instance, Nepal being a Hindu dominated country does not consume beef and as such McDonalds should produce burgers made of other products to ensure that it conforms to the culture in Nepal. With the increase in the value of products, it means consumers will be willing to pay more for quality products produced by McDonalds.
McDonalds should have an established value chain that is made of a series of identifiable activities of value creation such as production, marketing, and human resources among many others. The primary activities by McDonalds entail the creation of food products in Nepal, marketing of such products and distribution of the made commodities to reach the market in Nepal. McDonalds should also provide after sales services such as giving delivery of ordered foods to the customers on request in Nepal.
Companies can benefit by locating each value-creation activity in regions that are referred as the most conducive to the company’s performance with regards to economic, political and cultural situations. Companies that adopt and follow such a strategy realize location economies (Gandolfo & Trionfetti, 2014). By identifying a value-creation activity in the location considered optimal for an activity can generate two impacts. One of the effects is that it can lower the costs associated with value creation and assist the company in attaining a low-cost position.
It also enables the company to differentiate its product offering from the competitors’ offerings. Firms employ four primary strategies to compete in global markets, and this entail global standardization strategy, international strategy, localization strategy and transnational strategy. With the global standardization strategy, the focus is on reducing costs that arise from economies of scale, location economies and learning impacts (Gupta, 2013). The strategic objective is to follow a low-cost technique on an international level. Such a strategy is logical when there are robust pressures for cutting down on the costs and as such demands for local responsiveness are small.
McDonalds should establish its value creation units in Nepal in areas that are deemed to be most conducive to achieving the optimal performance with regards to economic, social and political situations. Adoption of such a strategy by McDonalds will help the company realize the benefits associated with location economies.
Localization strategy, on the other hand, concentrates on increasing profitability for the firm by customizing the goods such that the products are a perfect match to the tastes and preferences in local markets that are considered different. This strategy is most appropriate when there are distinct differences across countries with regards to tastes and preferences of the consumers and where pressure with regards to costs are not intense. The operation of MacDonald in Nepal requires an understanding of the regulations in such a country. MacDonald needs to be advised on the local tastes and preferences of people in Nepal so that it can produce foods and beverages that can be consumed by people in Nepal.
With this strategy, McDonalds will be better positioned to achieve low costs that are associated with location economies and economies of scale enabling McDonalds to differentiate its products across Nepalese markets. The transnational strategy is ideal and logical when pressures related to both costs and local responsiveness are simultaneously intense in a country such as Nepal where products have to be customized to fit the culture and the customs of Nepalese.
With this strategy, it may not work with McDonalds in Nepal since it entails taking products that were initially produced for the home market and selling theme in global markets and there is only little customization done. As such McDonalds may not use international strategy as it has to tailor most of the food products to suit the tastes and preferences of Nepalese.
Production involves activities that facilitate creating a product. Logistics, on the other hand, entails procurement and transmission of materials that are physical through the supply chain from the suppliers to the consumers. There is a close association between production and logistics. The potential of a company to conduct activities associated with production efficiently relies on a timely supply of inputs that are considered to be of high quality and this is the function of logistics.
Some of the goals of production and logistics conducted globally are to reduce the costs associated with value creation and add value by serving the needs of the customers. Some countries emphasize strictness in promoting particular quality frameworks. For instance, the European Union stipulates that the manufacturing processes of a company be certified under some specified standards known as ISO 9000 before such a company gets permission to access markets located across Europe.
Some elements should be prioritized when a company is considering moving to a particular location. Such factors entail country, product and technological factors.
Based on country factors, a company should locate its manufacturing activities in regions that are most conducive with regards to economic, political and cultural situations. Regulations that impact FDI and trade can hinder the choice of some nations. With agriculture being the backbone of Nepalese economy and is estimated to account for 60% of the GDP as such it is evident that agriculture is the main contributor for nutrition for most of the households and food manufacturing industries (Nikita , 2016). From the nutritional point of view, Nepal has been attributed for producing various types of nutritious foods but due information asymmetry, there is stunted growth for this industry. Thus, for McDonald’s, it is essential to consider the availability of raw materials in this case fresh farm produce necessary for preparing to make its delicacies. As such Nepal provides a perfect ground for McDonald’s operations as farm produce are readily available.
The nature of technology a firm utilizes in its manufacturing can impact decisions with regards to location. There are three features of manufacturing technology that are significant. One is the level of fixed costs, an efficient scale that is minimal and flexibility associated with some firms being established in multiple nations.
Two product elements affect location decisions.one is the product value to weight ratio. If the value to weight ratio is deemed to be high, then it is logical to have the product produced from a single location and export such a product to other global parts. The second is whether the product serves needs that are identical everywhere in the world. This is critical since McDonald’s will not have to import food products which are expensive and may become expensive for McDonald’s as it raises the cost of production. Nepal also provides a variety of farm produce and as such McDonald’s will benefit from the low prices of farm products as the supply surpasses the demand and this would make McDonald enjoy benefits associated with huge profits due to reduced cost of production.
The products offered by McDonald’s differ as per the tastes and preferences of the local people. For instance, the population in Nepal is unpopular for beef products whilst McDonald’s strength lies on its beef hamburgers as such it will be critical for McDonald’s to change some of its menus so that it can serve the Nepal market. For the sale of hamburger and beverages, McDonald’s can use the internet to update some of the offers they have for its clients as it does in other international markets. The use of social media platforms such as the twitter and Instagram have been deemed worthy in boosting sales. Establishment of retail outlets in convenient places is also crucial for McDonald’s. Such places provide the quiet and cool atmosphere where people meet and consume beverages while talking about their business or other matters.
The practices of Human resource management is a bit sophisticated in businesses operating in global markets due to the distinct differences between nations with regards to labor markets, economic systems, and culture. It is also the responsibility of HRM function to deal with issues arising in the host country, issues that relate to expatriate managers. The prosperity in global business commands that the policies adopted by HRM be aligned with the strategy of the firm.
This method of staffing entails staffing positions that are considered critical in foreign subsidiaries with expatriates from the organization’s home country. Expatriates are deemed to represent interests of home office and facilitate alignment of international offices with headquarters in the home country. Thus, expatriates are selected from the employees that are currently working in the company and are merely transferred to the foreign venture. Ethnocentric staffing presents some advantages such as it ensures that there is an alignment of interests and objectives of the home enterprises with those of foreign enterprises abroad. An American from McDonalds considering to relocate to Nepal has exciting opportunities as they will have a chance for advancing their career and personal upgrade as they are exposed to a diverse country that has a different culture and language from theirs. Though based on Hofstede model, there are huge disparities between the culture of America and that in Nepal which may translate to the failure of expatriates in such a country due to the failure of cultural integration between the two countries.
With the polycentric approach, a company hires nationals of the host country for positions that are considered as low-profile jobs all the way up to positions of executives. A local person from Nepal understands the disparities that exist in the cultures such as they will be better positioned to evaluate and analyze aspects such as power distance, indulgence, and individualism among many other aspects. Thus, the American manager will need to undergo rigorous training so that he can understand Nepalese customs and cultures in places of work such as their difficulty in seeking help and failing to maintain eye contact is treated as arrogance. Also, it is wrong to reprimand someone in public and the issue of raising voice on someone is treated as bad manners.
The employment of domestic workers sends an excellent message to the country and customers that the company is extending its commitment to the nation and its people. Hiring local people is also cheaper as it eliminates costs associated with relocation and the premium compensation that is associated with working abroad. Depending on the locals means some disconnect arises with regards to the interests and perspectives in the home country. The locals may prioritize their interests above the company’s vast interests thus impacting the operation of the company negatively.
A company using the geocentric approach has management that seeks opportunities on an international scale (Christensen Hughes & Rog, 2008). Thus, the company concentrates on how business is conducted in all regions of the world as opposed to how business is done in a specific country based on communication channels. The egocentricity can be used to hiring policies when people are mixed from across all locations based on equality with regards to skills as opposed to their domestic country.
Based on the fact that global operations are drawing closer, geocentric approaches make it simpler for a business to establish a competitive edge in whichever places they end up operating (Czinkota, Ronkainen, & Moffet, 2011). Development of ways of conducting business that is responsive to the different communication styles in other nations makes it easier for a company to communicate if the company has to establish subsidiaries in any part of the world. However geocentric faces some hurdles such as the company has to seek managers and employees that have the capability of adopting numerous styles at once. Also, the company loses some benefits associated with being a specialist in one country.
Conclusion
The concept of international human resource practices is essential in ensuring that McDonalds has the right people when operating in global markets such as Nepal. This is important in eliminating biases associated with Nepal when a significant proportion of the workforce is composed of expatriates. It is also essential to understand the demand for the goods and services as some markets have tight regulations and thus command high-quality products that meet specific standards. A company such as McDonalds needs to choose the best entry strategy based on its products in Nepal. The use of exports has been useful for companies venturing new markets. The macro factors are also important as they give insight on the market needs. Thus, McDonalds should study aspects such as demography and economic indicators in Nepal to gain a good understanding of Nepal market.
References
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