Mcd Expandion in International Markets
Beyond Entry: Examining McDonald's Expansion in International Markets
by Francine Lafontaine Ross School of Business University of Michigan and
David Leibsohn Ross School of Business University of Michigan
Abstract
This paper examines the factors that affect not only entry but also the subsequent growth of retail chains within international markets. Specifically, we focus on McDonald’s expansion around the globe. Arguably, McDonald’s has introduced the American concept of fast food and franchising to many foreign markets. Moreover, this firm has by now expanded throughout most of the world. Thus it is of particular interest to examine the international expansion path that this firm has chosen to pursue. The pattern of entry into foreign markets and growth that we observe contradicts the notion that McDonald’s expanded abroad only after saturating existing markets. Instead, we find evidence that consistent with traditional profit maximization arguments for a multi-market firm, as we see McDonald’s allocating resources to achieve growth across many desirable markets, particularly favoring those with higher GDP per capita. More importantly, we find that some of the factors that affect expansion post-entry are different from those that affect entry. We interpret these results as evidence that McDonald’s optimally focuses on those factors that affect profitability post entry whereas it also considers factors that affect the sunk cost of entry ex ante.
November 2004
Preliminary and incomplete, please do not quote
1. INTRODUCTION
An extensive body of literature on firm expansion beyond domestic borders in international business has focused on entry, specifically the issues of timing and mode of entry, where the latter typically takes the form of exporting, licensing, joint venture or FDI.1 While this literature has provided useful insights regarding where and how firms enter foreign markets, it treats entry as its own end rather than the beginning of
by Francine Lafontaine Ross School of Business University of Michigan and
David Leibsohn Ross School of Business University of Michigan
Abstract
This paper examines the factors that affect not only entry but also the subsequent growth of retail chains within international markets. Specifically, we focus on McDonald’s expansion around the globe. Arguably, McDonald’s has introduced the American concept of fast food and franchising to many foreign markets. Moreover, this firm has by now expanded throughout most of the world. Thus it is of particular interest to examine the international expansion path that this firm has chosen to pursue. The pattern of entry into foreign markets and growth that we observe contradicts the notion that McDonald’s expanded abroad only after saturating existing markets. Instead, we find evidence that consistent with traditional profit maximization arguments for a multi-market firm, as we see McDonald’s allocating resources to achieve growth across many desirable markets, particularly favoring those with higher GDP per capita. More importantly, we find that some of the factors that affect expansion post-entry are different from those that affect entry. We interpret these results as evidence that McDonald’s optimally focuses on those factors that affect profitability post entry whereas it also considers factors that affect the sunk cost of entry ex ante.
November 2004
Preliminary and incomplete, please do not quote
1. INTRODUCTION
An extensive body of literature on firm expansion beyond domestic borders in international business has focused on entry, specifically the issues of timing and mode of entry, where the latter typically takes the form of exporting, licensing, joint venture or FDI.1 While this literature has provided useful insights regarding where and how firms enter foreign markets, it treats entry as its own end rather than the beginning of