Management Strategies on Mcdonald's Corporation

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Assignment

Report of case study on Management Strategies
of
McDonald's Corporation

Jun 2006

Table of Content
INTRODUCTION1
ORGANIZATIONAL BACKGROUND1
LOW THREAT OF ENTRY2
Economies of scale, Learning Curve and Experience Curve2
Brand differentiation3
Cost and technology advantage3
Access to distribution channels4
HIGH THREATS FROM SUBSTITUTES4
Price and quality4
Better performance/service5
Different industry(Similar product)5
HIGH THREATS FROM THE BARGAINING POWER OF BUYERS/CUSTOMERS6 Forcing down prices6
Customers’ wants and needs7
Healthy life style7
Fast-and-Convenient Service7
LOW THREATS FROM THE BARGAINING POWER OF SUPPLIERS8
Forward integration8
LOW RIVALRY AND COMPETITION AMONG COMPETITORS8
Competitors8
Industry growth9
Product/Service9
HIGH THREATS FROM STAKEHOLDERS9
Local Communities10
Social Welfare10
Interest Groups and Suppliers: Environmental protection10
RECOMMENDATION11
CONCLUSION12
REFERENCES13
APPENDIX14

Introduction
This report is to study McDonald's Corporation using Michael Porter's Analysis on strategies used to deal with the competitive environment.
Organizational Background
McDonald’s restaurant established in Illinois in 1955, more than 30,000 restaurants in 119 countries worldwide, serving 47 million customers per day. In December 2005 reached a record high of more than US$20 billion revenue and 398,000 employees. McDonald's is the largest quick service restaurant organization in the world1.

This report uses the Five Forces Model from Michael Porter to analyze McDonald’s Corporation Ltd.
Source: Michael Porter Five Forces Model, www.brs-inc.com/porter.asp

This model studies the relationship between competitors within the same industry, such as potential competitors, suppliers, and buyers. Give alternative solutions to enable the management to develop an appropriate strategy.

Five forces analysis looks at five key areas namely “The threat of entry”, “The threat of substitutes”, “The power of buyers”, “The power of suppliers”, and “Competitive rivalry”.

McDonald’s is a multi-national corporation; they are big in size with broad target markets. McDonald’s belongs to “stuck in the middle” case, with no competitive. McDonald’s mainly uses analyzer type of strategy, combination of competitive strategies used, such as: cost leadership, differentiation, diversification, and backward integration. They also use growth strategies in corporate level like, concentration, backward integration and diversification strategies used. Those strategies used to against competitive environment will be illustrated in following sections.

Low Threat of Entry
Economies of scale, Learning Curve and Experience Curve
As new entrants may bring new capacity to the industry, a desire to gain market share and substantial resources, these may bring threat to an existed company. New entrants need to spend huge costs in purchasing and setting up machinery for running production, huge costs in advertising and R&D. With McDonald’s 52 years of well-found learning curve, new entrants have less advantage in handling costs spent. For the hamburger fast-food industry, a new comers’ experience curve is low which would refers to high systematic unit cost.

McDonald’s is using Cost Leadership strategy to against new entrants, high volume of sales, and fixed costs over a large volume of output, which reduces unit costs of products, that makes the new entrants a hard barrier from entry. McDonald’s has the advantages in handling costs spent; to new entrant is a cost disadvantage. McDonald’s has minimized the unit costs by dividing the production process into small parts, which can decrease assembly time, increase product volume and increase productivities of employee.

Brand differentiation
New entrant can enter the industry by differentiating a wider product line as McDonald’s focused on the major product line on hamburger....
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