Mcdonald's: Is China Loving It?

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McDonald’s, the world-famous brand that defined American fast food, first appeared on US television during the 1960s. The company entered mainland China in 1990, before China’s franchise law was introduced. Regarded globally as a representation of US culture and values, McDonald’s emergence in China soon attracted an avalanche of Chinese customers eager to try out its burgers and fries, which were vastly different from the staples offered by local Chinese quick-service restaurants. By 2008, McDonald’s was the second-largest fast-food provider in China in terms of number of outlets and popularity, after its primary rival, Kentucky Fried Chicken (“KFC”). Not only was food culture in China vastly different from that in the West, but Chinese food culture and lifestyles were changing as a result of surging economic growth and massive urbanisation. The competitive environment was also intensifying as local and foreign restaurants sought to capitalise on China’s increasing affluence. China’s rapidly growing middle class was also demanding higher standards from both local and foreign companies. McDonald’s local business practices in terms of food healthiness, employee welfare and other environmental issues were placed under close scrutiny. Would McDonald’s be able to keep pace with the rapid transformation of China from a closed country to an open and dynamic society?

McDonald’s Localisation Approach
In a traditional Chinese meal, dishes were served on communal plates, which were placed at the centre of a table for everyone to share. Diners would use their chopsticks to pick food out of the communal plates on a bite-by-bite basis. This was quite different from a typical Western meal, in which individual servings were doled out at the beginning of the meal and diners would have their own sets of food to themselves.

Fast food was not a completely new idea in China. Noodle and dumpling stalls and restaurants selling typical, light and simple Chinese food (eg, steamed bread, noodles, dumplings and wantons) were commonplace in the country, forming a part of the traditional culture. In the late 1980s and early 1990s, the emergence of Western fast-food chains had changed the restaurant landscape in China through the different experience they offered to Chinese consumers: efficient self-service, standardised servings, less reliance on eating HKU802

08/409C McDonald’s: Is China Lovin’ it?
utensils, a clean environment and a comfortable atmosphere. The immense curiosity of Chinese about foreign brands and their in-store experience had enabled these companies to set relatively high prices for their food [see Appendix 1].

McDonald’s China’s Franchising
Of McDonald’s overseas outlets, 70% were franchises.1 However, due to legal restrictions, this was not the case with its outlets in China. In fact, it was not until 1997 that China enacted its first franchise regulations, which applied only to domestic franchisors. 2 Only in December 2004 was a preliminary legal structure created for foreign franchisors as part of China’s commitments to the World Trade Organisation.3 Since McDonald’s entry into China in 1990, it had operated under direct investment model. Instead of using franchise operation model to grant qualified individuals a license to operate a chain store, McDonald’s restaurants in China were operated through joint ventures with local companies and its wholly foreign-owned enterprises (“WFOEs”) established in the country.4 Despite a long-term vision of setting up a franchise model in China as the government refined the franchise law, McDonald’s China focused more on ensuring brand quality and management control. 5 It was also of concern to the company that there were cases in China of other franchisees signing on as partners just to learn trade secrets and recipes and then open their own stores under different names. By February 2007, only one of 879 McDonald’s restaurants in China was...
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