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Corporation as a Pathological Institution
Corporation as a Pathological Institution
Author
Institution
Introduction
Social responsibility has been one of the most controversial topics in the modern society. It underlines an ethical theory that any entity, whether it is an individual or organization, has a duty and responsibility of acting for the benefit of the society at large. This duty aims at maintaining a balance between the ecosystem and the economy (Brubaker, 1995). In most cases, however, social responsibility is examined within the confines of corporations, where they are required to embrace and pursue its social responsibilities rather that solely focusing on profit maximization. This notion would undoubtedly result in the creation of businesses that have a positive relationship with the community or society within which they carry out their operations (Brubaker, 1995). Needless to say, there exists a tradeoff between the economic development or pursuits of an organization in terms of material gain and the environmental or societal welfare. It is worth noting that social responsibility revolves around the sustenance of a clear balance or equilibrium between these two aspects (Maxwell et al, 2000). Business entities may undertake passive social responsibility where they desist from engaging in activities that are socially harmful, or undertake active social responsibility through carrying out activities that have a direct effect on the advancement of social goals (Brubaker, 1995). Business entities in the contemporary human society have the fundamental or primary aim of maximizing profits. This may be done through reduction of the costs of operation of increasing their sales (Maxwell et al, 2000). In most cases, business entities resort to the former option, where they resort to reducing the cost of operations through shortcuts. It is worth noting that most of these shortcuts are detrimental to the society. Pursuing of economic growth usually involves neglecting social responsibility (Maxwell et al, 2000). This explains why organizations in the contemporary society have been finding ways of going round the laid out legal structures in an effort to maximize their income or profitability at the expense of social responsibility or the environment and the society at large. This is the main theme in Joel Bakan’s book “The Corporation: The Pathological Pursuit of Profit and Power”.
According to Bakan, corporations are established to make money or profits irrespective of the results affecting their own industry, world, managers or even labor force. This means that corporations are psychopathic, having acquired rights that were previously the preserve of human beings. As pathological or psychopathic institutions, corporations are known to knowingly and deliberately undertake actions that are destructive without any regard to their victims. Bakan determines that these legal constructs and economic institutions are fundamentally and essentially unbalanced with their existence being exclusively aimed at preserving their self-interests irrespective of the consequences of their activities. Bakan notes that these legal constructs were previously not so pervasive, influential or crucial. They previously only subscribed to proprietorships and partnerships, with the partners or owners being liable for any harmful activities pertaining to the companies, be they financial losses or even destructive tendencies to other individuals. This, however, has changed through enhancement of corporate power, in which case corporations manipulate the moderation controls of the government resulting in a reduction in the regulations that constrain their actions. In addition, they have been at the forefront in encouraging the incorporation of free-market answer to every problem that crops up. Bakan notes that the creation of a corporation was predicated on the notion of limited liability, all in an effort to protect investors especially from the middle class. The main reason for its popularity was that it allowed the investors to escape the failures of their companies unscathed, something that undermined personal moral responsibility that had for centuries been prevalent in the commercial world. The limited liability with which corporations came allowed investors to be recklessly unconcerned about the fortunes of their companies. In essence, the surrender of governments to public relations juggernauts and lobbyists has unleashed psychopathic tendencies and behaviors of corporations, something that would eventually hurt them.
Bakan starts his analysis of the corporation in the 18th century England. He brings an analysis of South Sea Company and how it started selling stocks hand over fist. These stocks were sold for a shady or unclear trading proposition in countries that had no likelihood of granting trading rights. The sale was done with company directors that had little knowledge pertaining to the countries where the trading was to be undertaken, and with whom the company had not established any contacts (Galiani et al, 2005). It, therefore, came as no surprise that the company surprised thereby destroying homes, families and lives. This resulted in the enactment of the Bubble Act, which criminalized the creation of a company or entity that took the form of a corporation or that issued transferable stocks devoid of legal authority.
However, this changed with industrialization which necessitated capital investments for enormous enterprises leading to the repealing of the Bubble Act. In essence, government control was lessened so as to enhance corporate growth. This was complemented with limited shareholder liability, as well as relaxation of constraints imposed on acquisitions and mergers all in an effort to encourage mass investment (Cespa & Giancinta, 2007). The resultant corporations were not products of government grants anymore, rather they were independent and free beings. The only difference between corporations and human beings is that corporations were entities representing accumulated, organized capital, unlike human beings who mainly represented personal capital (Cespa & Giancinta, 2007).
The corporation, however, has all the rights of a human being. This, combined with its nature as a pooled wealth, gave it powers of socialized means of production, in which case it rose above any other form of labor and capital. In addition, its operations were only geared towards benefiting its managers and shareholders. The power of collective capital over individual or personal capital is confirmed through assigning the rights of private property to collective or combined private property.
Bakan outlines the fact that in the first few decades of the 20th century, the United States government had an immense role to play in shaping the independent and free corporate entities emerging at that time. Some corporations were immensely concerned about their customers. Bakan, for example, examines Henry Ford who, at one time, decided to cancel the dividends of shareholders through reduction of the prices so as to divert the money to the consumers. However, his generous techniques were challenged by John Dodge who had earmarked the dividends for starting a business of his own (Galiani et al, 2005). He, therefore, took Ford to court after the later cancelled the dividend. The judge affirmed Dodge’s claims stating that irrespective of the goodness of his intentions, he had no right to divert such money to customers. This marked the beginning of a culture where corporations were required by law to act in the profit of shareholders’ best interests rather than for the general good. In essence, corporate investment on human rights, welfare, human health and environment was seen as illegal if it was not for the best financial interests of the shareholders (Cespa & Giancinta, 2007).
On the same note, he states that the United States courted big corporations in an effort to optimize on the profits with which they came. Soon other nations followed suit competing with each other and seeking the influx of capital investment and jobs with which corporate growth comes. This resulted in the introduction of the GATT (General Agreement on Tariffs and Trade) in 1948 and WTO (World Trade Organization) in 1993, thanks to competition in international business. These trade agreements and organizations resulted in the relaxation and removal of business regulations across borders so as to expedite, as well as attract international business. Eventually, corporations whose responsibility only rested on their shareholders rather than the general welfare carried their disregard for public welfare and safety to the global stage.
While underlining the growth of the corporations, Bakan examines the change in the power structure between the state or government and the corporations. Initially, governments were in control of corporations. This, however, has changed over the years, with the growth of corporate powers. The growth and international expansion of corporate power in the 80s and 90s resulted in the evolution of varied institutions at the international level that significantly eroded the nation state’s powers. He draws the example of the World Trade Organization (WTO), which he states has evolved into a corporate influenced, secretive, as well as powerful overseer of the mandate of the government to protect the environment and citizens from corporate harms. Bakan stresses the fact that over its considerably short life, the World Trade Organization has evolved into a considerable fetter on the capacity of nations to defend their citizens against misdeeds of corporations. He further stresses the point that corporate are now governing the society even more than elected and democratic governments do this underlines a situation where democracy has been thwarted with governments, which are the representatives and protectors of their citizens, being relegated to a subordinate level to the corporations demands (Bakan, 2004).
In examining the corporation as an externalizing machine that wrecks havoc at the environment, health and income of individuals with impunity, Bakan brings in the notion of corporations utilizing cost-benefit analysis in making decisions pertaining to the safety measures that they have to take. Their psychopathic nature means that they are singularly self-interested, bearing no capacity to have any genuine concern for other entities in any context. In its psychopathic personality, corporations are programmed in such a way that they exploit other entities for profit (Bakan, 2004). They come with a built-in compulsion or impulse to externalize costs, thereby dissipating any concern pertaining to human safety or the environment in instances where they face their common denominator, which is profit. In this regard, he cites the example of a lady who had another car slamming into her 1979 Chevrolet Malibu as she stopped at a red light (Bakan, 2004). This resulted in the explosion of her fuel tank with the car being engulfed in a fire that burnt her children. In essence, she resorted to a legal battle with General Motors claiming that they had exhibited negligence in designing the fuel tank as it had been too close to the rear bumper with no appropriate brace separating it from the rear. However, General Motors, through its engineer, stated that the maintenance of the current fuel tank was considerably less costly than coming up with a tank that could not explode (Bakan, 2004). The company calculated the cost pertaining to paying off the victims and compared it to the cost that would be incurred in improving the design, a comparison that showed that the later was cheaper than the former (Bakan, 2004). It was considerably less costly to pay off the deceased’s families in lawsuits than making improvements to protect human life through placing the gas tanks at a safer place.
This was the same case for General Electric, which prefers to finance clean-ups and pay fines in instances where it is caught flaunting the environmental laws instead of complying with public health and environmental requirements. He comes up with a list of apparent infringements by the General Electric in 20th Century’s last decade. These infringements include weighty issues such as illegal oversea sale of weapons, severe and repeated defilement of waterways and land, as well as responsibility for airline disasters. He uses these examples to underline the fact that for corporations like these, compliance with the rule of law has to be evaluated through the lens of costs and benefits. More often than not, shareholders gain more profits through risking human life through engaging in fraud, defiling lakes and streams, rather than complying with the laws.
However, as much as Bakan raises pertinent issues pertaining to the responsibilities of corporations, it is worth noting that his examination of “Corporations” is a bit warped. This term is not used broadly to discuss all the legally incorporated business entities, which would, in fact, include NGOs, small businesses, philanthropic entities, non-profit entities, as well as state-owned enterprises. Instead, he uses the term only with reference to large Anglo-American publicly traded businesses (Bakan, 2004). Questions arise as to the reason for his exclusion of these entities. In his arguments, he singled out these corporations calling them institutionally psychopathic and underlining suffering of infirmity as they have the sole mandate of being self-interested. However, questions arise as to whether small businesses are any less self-interested and greedy than the large ones. In fact, he does not consider the fact that every person and entity is self-interested including the middle class propagandists. The only difference between these large Anglo-American publicly traded corporations is the fact that they make up the fundamental engines of growth, not to mention the fact that they make up the foci of technological and social change, as well as the key driving force behind modernity and internationalism.
On the same note, it is imperative that one examines the composition of these corporations. As Bakan acknowledges, the ownership of their shares is broadly spread to the public (Bakan, 2004). Bakan loathes the fact that the common people have become shareholders in large corporations. It is noteworthy that a large number of the corporations are under the ownership of widely-held mutual funds, small investors, as well as pension funds from workers. In essence, these corporations are owned by common individuals as they are genuinely companies of janitors, managers, workers and engineers. This means that the workers, in their tens of millions, would to stand to lose the most in case the taxes and regulations stifle profitability and development in these enterprises. On the same note, the profitability of the corporations is founded on the actions of millions of the customers, who by their own regard purchase the items on sale from the corporations.
In addition, as much as the book presents the two sides of the argument pertaining to the appropriateness of a limited liability corporation as a form or type of business association, Bakan tries to sway the reader to the view or perspective that limited liability, as well as separation of control and ownership gives the corporation the green light to operate without accountability and with impunity. On the same note, he seems to imply that the existence of limited liability corporations is predicated on the existence of the state, without which they cannot exist. In addition, he underlines the notion that contemporary limited liability prompted the rise of the modern corporation to prominence (Galiani et al, 2005). Of course, it is extremely true that the corporation would not exist in the absence of a state, just as is the case that statutory laws would be nonexistent without the state. However, it would be improper to create the notion that there would be lawlessness in case the state was not there, especially considering the fact that there have been numerous episodes in history where order and peace prevailed in spite of the inexistence of strong authority (Galiani et al, 2005). This makes the notion that the corporation would not exists without a statutory grant suspicious. Of course, there exists no way of ascertaining whether corporations, in their contemporary nature, would exist. However, it is worth noting that alternative forms would undoubtedly exist just as they have existed throughout the history. Corporations come with two fundamental characteristics or features. They have limited liability and are separate entities that have the capacity to operate or carry out their duties separately from their shareholders (Khanna, 2004). As much as limited liability may be seen as having been granted by the state, liability has practically always been limited by the shareholders’ wealth. Scholars note that bankruptcy laws, regardless of their draconian nature, cannot take more than the debtors’ existing assets. In addition, laws pertaining to partnerships that have been in existence right from the ancient times, as well as the law of trusts whose existence can be traced back to the Anglo-American system of 16th century underlined the notion that there would be entities that operate or carry out their activities with a personality that is separate from that of their owners (Khanna, 2004).
In addition, Bakan uses the varied examples to not only point out the pursuit of self interest among corporations, but also to underline the notion that a corporation’s profitability has an inverse relationship with its corporate social responsibility (Bakan, 2004). This is why corporations must sacrifice the environment, human health and other aspects if they have to attain some element of profitability. However, this is not necessarily the case especially considering that research has shown that corporate social responsibility has a positive impact on the profitability of a corporation (Khanna, 2004). In fact, scholars state that there is a mutual or symbiotic relationship between the profitability of a corporation and its corporate social responsibility. While the socially responsible activities of a corporation would endear itself to the people thereby increasing its profitability, the profitability would enhance its sustainability in the long-term and allow it to finance, sponsor or take part in socially responsible activities.
References
Bakan, J. (2004). The corporation: The pathological pursuit of profit and power. New York: Free Press.
Brubaker, E (1995). Property Rights in the Defense of Nature. Toronto: Earthscan Publications Limited
Cespa, G & Giancinta, C. (2007). Corporate Social Responsibility and Managerial Entrenchment. Journal of Economics & Management Strategy. 16: 741- 771.
Galiani, S., Gertler, P.J & Schargrodsky, E (2005). Water for Life: The Impact of the Privatization of Water Services on Child Mortality. Journal of Political Economy 83.
Khanna, V.S (2004). Politics and Corporate Crime Legislation. Regulation 30.
Maxwell, John W., Thomas P. L., & Steven C. H. (2000). “Self -Regulation and Social Welfare: The Political Economy of Corporate Environmentalism. Journal of Law and Economics . 43: 583-618.
Corporate Strategy McDonalds in Chinese Market
MCDONALD’S IN CHINESE MARKET
Name
Class
Professor
University
City, State
Date
Corporate Strategy: McDonald’s in Chinese Market
Introduction
McDonald’s is the best and largest centralized international company today. The company was started in San Bernardino California, in 1940 by two brothers Mac McDonald and Dick. McDonald’s specializes in supplying fast foods like French fries, hamburgers and many other consumable products. Currently McDonald’s operates in 121 countries worldwide and has 30,000 restaurants. For McDonald’s to invest and market its products in foreign countries, it employs three primary methods: company owned restaurants, franchising and joint ventures (DAVIS, 2000).
In China, McDonald’s is located in Beijing and other major cities and towns. McDonald’s was first opened in Beijing, which is termed as a localization or adaptation of American cities. McDonald’s opened in 1992 with approximately 700 seats and 29 cash registers serving 40,000 customers within the first few days of operation. The opening of McDonald’s restaurant in China became an instant attraction for the domestic tourists who flocked the premises and enjoyed the American culture. After opening the restaurant in Beijing, a series of restaurants spread in city of Beijing and by the end of 1996, 29 outlets were already opened all over the city. In China, Beijing has the largest market for McDonald’s that the company can capitalize on to open more outlets countrywide since the company has plans to open over 600 outlets in China by the end of 19th Century (ALON & WELSH, 2001).
The introduction of McDonald’s in China was at first greeted with a negative attitude, but later the political system accepted the idea of eating in a foreign restaurant. In fact during the National Day in China in 1993, the government organized a dinner at McDonald’s restaurant located at Wangfujing Street. Unfortunately, the largest McDonald’s in Beijing was demolished to paved way for the construction of the Oriental Plaza. The management of McDonald’s has introduced franchising method to help in the introduction of new styles of eating in the unfamiliar markets. This method has helped so many locals in China to eat from McDonald’s, which is a foreign restaurant, without fear.
The residents of Beijing see McDonald’s as a symbol of America and value it as a way of modernizing the country and the Chinese society. The success of McDonald’s products is the high standard procedures used by the staff in food production, its current executive methods and its scientific recipes (REES & POLLACK, 2004). McDonald’s is known as a large company in the American market and many youths prefer working at McDonald’s before moving from their country to go and look for work in other states or countries. McDonald’s gives the youth adequate experience that is crucial when they later seek jobs with other companies.
The introduction and incorporation of McDonald’s restaurant in the Chinese market has boosted the economy of the country because of the high sales of their products to both the domestic tourists and the international tourists visiting the country. The restaurant has high quality foods that attract many repeat customers to eat there hence is gains competitive advantage in the Chinese market (BERGSTROM, 2012).
Market and Customer
The market scope is defined as the target consumers who are interested in the products being offered by an organization. The market is defined by the total populations, which are triggered by factors such as increase in a product price and government policies. To understand the market scope of MacDonald’s, the marketing segment needs to have an understanding of the customers to satisfy their needs by offering a marketing mix that could be satisfactory to the consumers. These could be done by identifying the market segment, the distribution channels to access the target market and the resources needed to reach the market scope as MacDonald’s restaurants needs a large market size in order to have enough customers. The market scope is made of customers of different cultural differences and the customers’ behavior is affected by beliefs, custom and values (Anna, 2006).
Product
McDonald is the second largest fast food chain in China. The company has placed adaptive measures to cater for the Chinese clients’ preferences. The menu has been localized based on chicken and a few products derived from beef (Ritzer, 2009). McDonald’s offers different types of chicken sandwiches, chicken wings, fish sandwich and McNuggets. McDonald’s carry ice cream cones, the McFlurry, pineapple pies and sundaes. Their breakfast menu consists of a ham, an egg, cheese sandwich and pancakes. McDonald’s also offers soft drinks in McExpress stores and ice cream desserts, which could be delivered to the clients at a small fee. The introduction of McDonald’s McCafe in stores offers coffee, special drinks such as lattes, and sweets for the growing number of coffee customers.
Technology
Technology has played a major role in McDonald’s food stores and restaurants in the modernization of their restaurants. This is evident in the strategy to evolve their menus and their customers experience to the new nutrition- based products. McDonald’s Corporation has revolutionized the use of technology in restaurants in a bid to increase sales in terms of the speed in serving customers (Svetlana, 2008). McDonald’s has installed plasma and wireless internet platforms for free thus incorporating modern professionalism to satisfy its customers’ requirements. In addition, McDonald’s provides laptops outlets and video games kiosks to its customers making its stores a hang out place for its demographic market. The use of technological innovation has shortened the time spent on payment, processing and the preparation of McDonald’s products.
Geographic Area
McDonald’s Corporation is based upon a geographic structure that keeps major markets while expanding into emerging markets. The penetration strategy of McDonald’s restaurants in China has been enhanced with the issue of the development license, which has led to the expansion, and the creation of opportunities for the local enterprise in the Chinese market. The first McDonald’s restaurant opened in China was established in the South City of Shenzed in Beijing (Watson, 2006). Despite its late entrance to the Chinese market, it enjoys an advantage being one of the famous brands in the food industry leading to its wide expansion. Presently, McDonald’s has established its stores in over 1,100 locations in Beijing.
McDonald’s Stakeholders
Customers
At McDonald’s, the customers are treated with equality and democracy. Regardless of status or any other criterion, a customer at McDonald’s will be treated with a lot of friendliness and warmth in the restaurant. Customers therefore, patronize McDonald’s to experience moments of equality. In the Chinese restaurants, banquets are very competitive and customers try to outdo one another by ordering for the most expensive food which, in turn, causes the person sitting next to lose face. The competition banquets competition compels customers to rent private room so that they do not experience such embracement (COOMBS, 2013).
At McDonald’s, there are such occurrences since the menu is limited, there are standardized foods and the customers receive items that are of equal quality. Therefore, for people who have less money but need good meals, McDonald’s is the best alternative. The foods offered at McDonald’s offers the customers all the nutritional constituents a needed for a healthy life including water, fat, starch, protein, sugar and vitamins (BERGSTROM, 2012). Therefore, when a customer decides to spend money on a single meal at McDonald’s, he is guaranteed enough nutrition at least for half a day.
Employees
Most of the employees at McDonald’s are the youth. People prefer to work at McDonald’s because it prepares workers to be able to work in any position and from any other company. For example, the Canadian youths look for employment at McDonald’s restaurants before they seek employment elsewhere to broaden their skills. Each employee at McDonald’s plays a major role to ensure the productivity of the company. Employees work as a team and enjoy numerous benefits of being part of the McDonald’s big happy family (RITZIER, 2010). There are picnics offered to the employees that significantly motivate the employees to form lasting friendships.
Employees have the freedom to choose the time they feel is best for them to work. The restaurant ensures that employees work under very safe conditions including catering for their health and security. The employees receive promotions and motivations regularly so that they perform their duties appropriately (RITZIER, 2010). The benefits the employees get at McDonald’s include:
Group insurance plan where the Employees and their families are entitled to health and life insurance plan.
Profit Sharing where the employees get good share of profits of the company and McDonald’s is the greatest profit sharer in the whole world.
Matching Donation Programs where any charitable donation an employee’s gives is compensated by McDonald’s.
The positions at McDonald’s are categorized as follows:
i) The Second Assistant Manager whose roles are to train, motivate and coach the employees.
ii) The First Assistant Manager ensures aspects like: recruitment of new staffs, scheduling the staffs’ activities and managing all the equipment used in the restaurant.
iii) Other functions executed by the managers include performing field operation services, training the employees, developing the employees, human resource management, marketing and supply chain management.
The Suppliers
McDonald’s relies on independent suppliers who can efficiently deliver products by maintaining the company’s standards and specifications. One of the main suppliers of McDonald’s is the Bama Foods which supplies McDonald’s mainly with pineapples, apples and bean curd pies. The other supplier of McDonald’s is the McKey Food Services Ltd which is majorly based at the Shenez city. The Chinese Livestock Company also provides McDonald’s with meat. The suppliers of McDonald’s have outstanding appeal because there are no other suppliers who can meet McDonald’s high quality standard requirements.
Economics Trends of McDonald’s
The numerous branches of the McDonald’s always experience hardships whenever the economies of various countries experience inflation. Exchange rates also have effects on McDonald’s economy. McDonald’s being a business entity usually faces a lot of economic variables in its macro environment. McDonald’s should be well acquainted with the global supply changes and appreciate how the frequent currencies changes because the company sources most its products from the international markets. It is therefore evident that any change in currency and especially the dollar will affect the cost of purchasing McDonald’s products.
McDonald’s faces governmental regulations on taxes in all the nations where it operates branches. The countries have different scales of taxation which makes it rather tricky for the company to allocate funds effectively and this pose a great challenge to the company’s economy. The company also pays a certain percentage of revenue to the mother company in the U.S. The economic conditions of a country also have an impact on the business. Whenever the company tries to price products a bit higher than other foods, people will buy the cheaper foods as the consumers will prefer what they can afford. This is another challenge to McDonald’s as it must strive to capture as many customers as possible. The effect is that the company might end up making great loses. If the economy of a country is good, the consumption of the company’s products would increase regardless of the food pricing.
The Political trend of McDonald’s
The Government policies on the regulations of fast foods have great effects on McDonald’s operations. The main justification why the Chinese government is regulating the fast food markets is to promote the nation’s health by avoiding issues like the cardiovascular diseases, high cholesterol level foods and even obesity. These health issues are basically experienced by the young generations. The government also ensures that only recognized fast food restaurants get the license to carry out the business. McDonald’s needed to create good rapport with the government so as to succeed in the business. When employing the staff, the company must ensure that the employees are hired, compensated and trained according to the stipulated laws of the nation.
The Social Trends of McDonald’s
McDonald’s is taking into consideration the changes in lifestyle of China which is as the result of the development of the economy. The customers are able financially and can eat in very expensive outlets, but despite this fact, customers expect to be served with quality services. McDonald’s is working towards providing the best quality services to the customers and to therefore enjoy the market advantage against other restaurants. The best services given by McDonald’s that makes it different from others restaurants derive from the cutting edge technology. McDonald’s offers several convenient services for the customers including credit card payments, wireless internets, cozy and ambient relaxing points and refreshments.
McDonald’s has also tried to offer menus that favor different cultural beliefs; for example, the Hindu people don’t take meat therefore the company has a menu that favors the Hindus; the Muslims don’t take pork products therefore the company offers an alternative menu for the Muslims. The Chinese also have menus that favor their culture; the Asians like rice while Americans have preference for big sized menus (STOJIC & PFAJFAR 2010). McDonald’s should continue doing more market research and establish what the customers eat as far as culture is concerned.
The Technological Trend of McDonald’s
Technology is not a major macro environment factor in a fast food restaurant. Nevertheless, the company should do a deeper market research to know the new trends that will help in managing its operations. The main technological trends that the company should look into are the supply chain trends so that they supply their products to the customers in the most current technology. The payment systems should also be of modern technology, and the customers should also be able to access the restaurant through the internet (STOJIC & PFAJFAR 2010). The technological methods can be good cost savers both for the customers and the company.
McDonald’s Global Trend
In the first quarter, the leading fast food restaurant in the world had a marginally higher income which was at $ 1.27bn, but the global sales later on fell by 1%. The company says that the drop was due to the harsh winters in the U.S and the Europe. McDonald’s is also facing great pressure from its competitors. The Yum Brands which is the owner of the Pizza Hut, Taco Bell and the Kentucky Fried Chicken is posing a great challenge to McDonald’s as it is rising very fast. The Burger Kings have also redesigned their products in a more appealing way posing another great challenge to McDonald’s (OVERSEAS MISSIONARY FELLOWSHIP, 2008). Following the disappointing third quarter, McDonald’s is trying to make up for the fall so as to get a better response to the continuing financial crisis that is faced globally.
The major focus of McDonald’s for the year 2013 has been to improve its menu and develop innovative products that are very profitable. The company is also working towards producing products that are less time consuming like the chicken bacon and onion sandwich (OVERSEAS MISSIONARY FELLOWSHIP, 2008). Even though McDonald’s is trying to globalize its products, it is vastly experiencing great resistance from different cultures, for example, Japan resisted McDonald’s foods saying that the food caused obesity.
McDonald’s Regulatory Trends
McDonald’s company has taken strong measures to ensure that the business is conducted in a very ethical way and that the business activities comply with the rule of law. The commitment to attain the rules derives from McDonald’s core values. McDonald’s employees have the responsibility to abide by each value including the values of honesty and respect. The commitments are clearly spelt in the company’s Standards of Business Conduct that guide employees to conduct themselves in an ethical fashion (OVERSEAS MISSIONARY FELLOWSHIP, 2008). All the employees of McDonald’s must read McDonald’s Standard of Business conduct and accept to abide by the set rules. McDonald’s organizes a number of workshops and seminars to train the employees on the standards, laws, regulations, and policies that govern the company. All the employees of McDonald’s must obey the Foreign Corrupt Practices Act (FCPA). The (FCPA) act generally strives towards ensuring that politicians or political parties do not use their powers to manipulate or exploit businesses.
The act also ensures that giving bribe to any government official, private businesses, or individuals is prohibited. The employees of McDonald’s must certify yearly that they agree with the FCPA and their local act. The global compliance office of McDonald’s regularly monitors the company’s policies so as to prohibit unethical acts like bribery, money laundering and the chances of conducting business with terrorists (BARNEY & HESTERLY, 2012). This monitoring process is directed by the United States Patriot Act, the FCPA and the Executive order which is 13224. McDonald’s is also required to adhere to the general laws of business operation set by the Chinese government.
Uncertainties of McDonald’s restaurant in China
McDonald’s China faces several challenges despite having a strong brand in the industry. Some of the uncertainties are the pressure derived from the competitors, the government control and political risks, the market cultural differences, an increased labor cost, and the inherent inefficiency in the supply chain.
Competitors
The major competitors to McDonald’s are the Kentucky Fried Chicken and other Yum Brands. This is due to the late entry of McDonald’s in the Chinese market, its strategic decisions, and the localization of the products offered in China by the competitor Kentucky Fried Chicken. McDonald’s faces a major problem from its competitors through its weak copyright issue. Being a globally known brand McDonald’s facing the challenge of the imitation of its product and logo design (Chan, 2009). McDonald’s has the least market share in comparison to its competitors which leads to wrong customer’s perception about the available products and services. This is due to the food quality, diversification and maintenance of lower prices on the products by competitors like Kentucky Fried Chicken in comparison to those of McDonald’s.
Government Policy and Legal Factors
China is faced with the challenge of corruption in the political and legal system that has been catalyzed by lack of transparency in its judicial structure, which does not have binding precedential value. Foreign companies, therefore, do not receive adequate legal and political representation in China. Land ownership is not transparent inevitable, as the government owns the land. The business operation of McDonald’s faces numerous challenges since it entails large amounts of property transaction and privatization of land does not exist (Brown & Ganguly, 2008).
Cultural differences
The diverse Chinese consumption habits are based upon the different cultural beliefs. These consumption habits dictate the taste preferences of the people in towns like Beijing. The cultural food practice determines which foods qualities are accepted by the people. Some cultures in China castigate the consumption of fast foods leading to poor sales of these foods in such regions. McDonald’s Corporation operates a few stores in China as compared to Kentucky Fried Chicken owing to the culture barrier. Kentucky Fried Chicken adapted their products to fit the cultural expectations of the local people before McDonald’s discovered the strategy. McDonald’s has consequently conducted several market researches and initiated strategies to ensure that its fast foods are consistent with the local cultural beliefs. Tailoring the fast foods to fit the local taste and to obey the local cultural beliefs is the only sure strategy for McDonald’s to maintain its undisputed fast food leadership in China (Rein, 2012).
High labor cost and food price inflation
The Chines government’s decision on labor and the one-child policy have caused a decline in the labor pool. The decrease in population in China has increased the labor cost (Scharping, 2000). The cost of living has become expensive hence the wages that McDonald’s pays its employees have also increased. McDonald’s Corporation is faced with the challenge of the rising expectation of customers who want to pay less for products. Such customers perceive the fast foods offered to be of low quality just like their counterparts in America. The price of food has increased affecting the fast food chain in China. The high global commodity prices have broadened the inflation rate and threatened economic growth. Due to this situation, McDonald’s and other food stores have escalated the food prices leading to customers’ frustration. Despite China having the largest population in the world, its food supply chain relies on the small food producers. The big difference between the producers and consumers of fast foods In China calls for mass production that has made McDonald’s to face numerous challenges in managing its supplies (Schütte & Ciarlante, 2010).
Uncertainties Description
Competitors The major competitors of McDonald’s are the Wendy’s, Burger King, Subway, Pizza hut, KFC and the local fast foods. The competition is heightened by strategic decisions, and the localization of the products offered to in China by McDonald’s competitors. McDonald’s has the least market share as compared to its competitors, a situation that creates wrong customer’s perception about its product and services.
Government Policy and Legal Factors
Corruption in the political and legal system has been catalyzed by lack of transparency in China’s judicial structure, which does not have binding precedential values. Foreign companies therefore do not receive legal and political fairness. The operation of McDonald’s business endures numerous challenges as it is involved in large amount of property transaction and privatization of land does not exist.
Cultural difference The Chinese consumption habits differ from the American consumption in various respects. Various Chinese cultures have their unique consumption habits that explain the differences in their taste preference. McDonald’s Corporation operates a few stores in China as compared to Kentucky Fried Chicken. This is factual because the company tailors its products to fit the local taste as dictated by the local cultural beliefs. The reengineered strategy by Kentucky Fried Chicken is a product of several researches that have also motivated McDonald’s to come up with products that fit the local needs of the Chinese market and to appreciate the consumer habits of the Chinese people.
High labor cost and food price inflation
The Chines government’s decisions on the labor and the one-child policy have caused a decline in the labor pool. The increasing labor costs have ultimately raised the cost of living. The price of food has increased and affected the fast food chain in China. The high global commodity prices have broadened the inflation rate and threatened economic growth.
Basic Trends and Uncertainty
These are the factors that McDonald’s considered when examining China as an appropriate location for starting its business. These are also the appropriate approaches for highlighting the general business environment to help in managing the coming opportunities and threats. The potential changes in the environment are determined through analyzing the economic, environmental, political and regulatory, cultural, social conditions as well as technological issues to ensure that the business operates effectively. These trends are analyzed below in detail in relation to the Chinese market.
Economic
The growth of the economy in any environment or country has significant ramifications on the activities of small marketing enterprises (SMEs). The exchange rate, employment levels, banking policies, interest rates, inflation rates, Gross net product (GNP) trends, Gross domestic product (GDP) per head, fiscal and monetary policies, availability of raw materials and energy are some of the factors considered in economy analysis. The growth trend of GDP per capita of China in the 19th century provided a concord GNP indicator and highlighted that the country had sustained a continuous rapid growth in terms of GDP per person. This gives an indication that each person in the country is creating more value to the society leading in the high purchasing power of customers (Mathews & Lü, 2001).
Sometimes businesses are slowed down by economic development trends like higher prices of property and high rates of inflation though the situation of the economy seems to be good. Recent news of businesses in the Chinese market show that consumer price index went up by 6.1 percent from a percentage of 6.5. Food prices rose up by more than 13 percent; this is the most sensitive part in the government’s budget. The overall economy in the Chinese market with respect to McDonald’s restaurant has slowed down for three successive quarters but McDonald’s in Beijing have endeavored to reduce inflation and slow growth.
The interest rates have been increased for last five years by the people’s Bank of China and the Central Bank of China (BERGSTROM, 2012). The reserve requirement for commercial banks has increased nine times hence banks have reduced the lending limits on basic needs like food to control consumer and property prices. Turbulence in the economy is very significant since it can affect the shift of demands of segments in the Chinese market. For example, the world’s economy was recently shaken by forces emerging from citizens having less disposable income, issues with credit crunch, less gross demand of products and wild unemployment in nearly all the major economies.
High interest rates and inflations have also affected the major geographic markets of McDonald’s hence leading to decreased sales and increased costs of running the business. McDonald’s and many other businesses experience the aftershocks caused by a lagging economy. Reasonable prices of McDonald’s menu ad a wide range of foods have been adopted following the appreciation of the fact that economic turbulence are ever enduring (DAVIS, 2000).
Political
Legal issues, formal and informal rules which govern the company and government regulations are part of the political conditions in the Chinese business environment. Research shows that political conditions are the most turbulent forces in any business environment. The Chinese government has attached great significance in the past one decade focusing on the development of e-commerce. These steps that promote e-commerce include the summaries of the Middle/Long term Science and Technology Development Plans of government of China, the growth of the Development of Information Industry Plans in the Eleventh Five-year and Long term Plan in vision 2020 in the ministry of information industry.
The Chinese legal structure for e-commerce is in its promising phase in terms of the legal structure governing the Chinese people (DAVIS, 2000). However, the system has been experiencing some problems in its current stage. There is no sufficient knowledge in the Chinese government for drafting issue pertaining to e-commerce legislation like rights to intellectual property, security in transactions carried out in the country, protection of property and taxation of products in the country. All these laws help the government to earn some income from the transactions taken by the business people internationally and locally.
The Chinese government is drafting some laws supporting the critical areas like the rights of consumers, privacy in business sector and acknowledgment of digital signatures and validation of contracts in the electronic world. The Chinese legal system is developing slowly to meet the demands of the e-commerce sector (REES & POLLACK, 2004). McDonald’s is therefore, compelled to adjust its operations due to the Political shifts in China.
McDonald’s is developing ways to ensure that political changes in China will not directly affects its business in future, but it will remain stable in the midst of any political storm. This has been made effective by having partnership with Sinopec, which is the largest oil operator in China. The rapid growth of the Chinese population has really encouraged McDonald’s to open more restaurants in the country (DAVIS, 2000).
Social
The society needs to be analyzed keenly to understand the cultural and social environment in the world of business. Changes in demographics like movements, age distribution and population growth are significant because they have some effects on the cultural values and changes in social trends such as social behaviors and growth of the family (REES & POLLACK, 2004). Several other social factors that abound include environmental issues, immigration/emigrants, consumer lifestyles, religion, demography and education. As the Chinese economy grows, the growing population will require the use of the internet that McDonald’s has capitalized on to promote its sales.
China’s online shopping had a turnover of $80billion in 2010 and this is growing year in year out. 420 million Internet users in China spend approximately a billion, dollars every day on internet use, and around 15 million did purchase of goods online. Since the purchase of goods online is effective the Boston Consulting Group is predicting an increase of such by the year 2020. This will be easy because the e-commerce has changed the thought of consumers of goods in China about shopping online.
People are being warned about online, shopping since it has cheating and fake goods and this is a draw back to business world although the genuine business men try to ensure that the online products are quality. The Chinese business requires face to face transactions in order to build trust to the consumer, which is related to Hofstede’s notion of individualism-collectivism.
Technology
Factors influencing technology include new mechanisms of purchasing, development of new products, new working methods, new mechanisms of distribution and new production technology. The largest technological problem affecting the development of the Chinese B2C industry is the lack of secure and stable online payment systems. According to research, the online payment system is affected by the Chinese consumer’s favorite for high Uncertainty Avoidance Index (UAI
Corporate Strategy in Wal-Mart
Corporate Strategy in Wal-Mart
Name
Institution
Concentration
Apple Inc is a corporation that uses the CONCENTRATION corporate level strategy in its production of personal computers, tablet computers and music equipment. Its main offices are located in Cupertino, California. Apple Inc mainly produces products aimed at a particular market niche, as can be appreciated from the pricing of their products; most of the target customers are those who prefer exclusive, high end and expensive products. Further the unique nature of its products and distribution system targets a given group. All of its products utilize unique platforms, including the Ipod, which is configured in a manner that ensures exclusivity in its usage. The, uniqueness of the products it provides, as well as the fact that in its short history there has never been a departure from its set of products is a clear demonstration of the concentration strategy.
Growth
Wal-Mart Stores is a retail corporation that runs a chain of discount warehouse and departmental stores in over 15 countries, with its headquarters in Bentonville Arkansas. Essentially, it has a chain of more than 8500 stores which are operated under almost 55 different trade names. Wal-Mart Stores therefore, uses the GROWTH corporate level strategy, concentrating on not just geographic expansion, but also product development. This strategy is clearly evident from the fact that Wal-Mart has grown from 1 store to the more than 8500 indicated above. Further, the differentiation in the number of products it offers also serves to highlight the application of the growth strategy in earnest (Dess, Lumpkin, & Taylor, 2004).
Integration
Warner Brothers, is a media industry company concerned with the production of motion pictures, and has its headquarters in Burbank California. The company utilizes the INTEGRATION strategy, and specifically, the vertical integration approach, not only in its production of the motion pictures, but also when it comes to distribution. The company actually owns half of the television network CW, through which it is then able to distribute motion pictures it has produced; a good example being the Smallville series. This shows vertical integration, as it has opted to undertake activities that would have otherwise been provided by other business channels, more so distribution (forward integration).
Diversification
Essar Group, is a multinational corporation that has its headquarters in Mumbai India, the group essentially diversifies into a number of varied products, ranging from steel, energy, communications, construction, power and logistics amongst others. The company uses the DIVERSIFICATION strategy, as evidenced by the fact that not only did the company start off as a construction company but it has grown into a conglomerate, with interests in numerous other unrelated industries. Seemingly, this strategy of expanding into previously unrelated fields is still ongoing, implying a corporate level strategy of expanding into products that in no way relate to their already existing products, a theme which is in line with the diversification strategy.
Investment Reduction
Iberdrola, is a multinational company based in Bilbao Spain, that concentrates on the provision of electric utilities. Due to a number of problems in its recent history, the company has resorted to adopting the INVESTMENT REDUCTION strategy. The strategy to reduce investment to about €3.5 billion per year, until 2014, was mainly aimed at providing and releasing funds for usage in the growth and expansion of the company in areas such as networks, renewables and other liberalized activities, which may assist in the growth aforementioned. The company therefore, has adopted an investment reduction strategy in order to facilitate growth in other areas (Gerry, Scholes, & Whittington, 2008).
References
Dess, G., Lumpkin, G., Taylor, M. (2004). Strategic Management: Creating CompetitiveAdvantages. McGraw-Hill College.
Gerry, J., Scholes, K., & Whittington, R. (2008). Exploring Corporate Strategy. Financial Times,Prentice Hall.