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A 8 pages term paper on International Marketing Analysis

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EXECUTIVE SUMMARY


McDonalds intends to open another 20 outlets in Russia by the end of 2003.

Inspite of a grueling downspiral of the economy, this company has managed to conquer the Russian fast food market. With 52 outlets operating in Moscow and its suburbs, the focus will be shifted to a country wide coverage followed by penetration into the Central Asian republics. The new marketing plan concentrates on projecting the Mc as more a healthy food than just an easily available one. The advertising budget should be increased by 20% and there should be more involvement in below-the line activities.

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The positioning will basically be of a healthy, easily available, American meal with modifications for launch in different cities & localities.
Services of home delivery and McShuttles will be provided. The McShuttles will be basically be 14 to 20 seaters which will pick and drop employees and students during lunch time. The routes will of course be different.

The company already has a strong base and is fairly popular. The company should try to maintain that image.

McDonald needs to improve the image of the quality of its food. The general impression is that the beef used is of low quality. The new image should be of high quality food offered at an affordable price. There have been issues with the labor unions in the recent past. The management should be better equipped to handle such conflicts.

The budget allocated for marketing research should be increased since Information about consumer behavior and competition is of dire importance.

The dream that the organization sells is American but the consumers are local so certain changes should be made in the organizational culture and the services to conform to the Russian culture.

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TO RUSSIA WITH FRIES

For the longest time, we thought the McDonald's story was all about bland America food — not sophisticated development aid.
But when we asked one of its headquarters chieftains what business McDonald's is really in, we found quite a difference between perception and reality. "What people don't understand, " we were told, "is that our franchisees — not the company — own the bulk of the restaurants. It's up to them to sell the food."

 Move over, World Bank!  The executive explained that McDonald's, the company, is really in the logistics business — administering a huge network of suppliers, transporters and outlets.  And the logistics are getting increasingly complex, given that in recent years McDonald's has opened nearly as many restaurants in emerging markets as in the United States. So forget about feeding hamburgers to the masses.  What the company is really doing is teaching critical development skills: how to organize supply chains, implement quality control programs and run sophisticated perishable goods transportation networks; Burgers for Beijing, Nuggets for Nanking. Thus, when McDonald's first expanded into new markets in China and India, the company trained local farmers how to grow just the right lettuce and near- perfect potatoes ... and how to get their products to the restaurants on time. Strange! For the longest time, we had thought the McDonald's story was all about supposedly bland America food — not sophisticated development aid.1_ January 7, 2000 McDonald's as a development aid.

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Moscow's Big Mac era has entered its second decade. And, if the crowds present during a recent two-for-one sale are any indication, McDonald's has not lost much of its attraction since it first opened to block-long lines after the fall of communism in Russia.
Located on Pushkin Square in the city center, the first franchise opened Jan. 31, 1990, in the tide of Glasnost, while Russians lined up en masse along Moscow's main boulevard to get a taste.

The restaurant, which celebrated its 10th anniversary with a two-for-one Big Mac sale, is the largest McDonald's in the world, boasting a volume of 28,000 square feet, conforming to the Russian preference for massive architecture. The world's largest McDonald's is also the world's busiest, serving more than 80 million customers since opening and more than 250 million from its combined 52 restaurants throughout 17 Russian cities.

That's more than 52 million Big Macs – outdoing the width of the moon – with 7 million kilos of French fries outweighing, yes, 2,300 female Indian elephants, according to information provided by the company.

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"McDonald's growth in this country is a Russian success story," said George A. Cohon, founder and senior chairman of McDonald's in Russia. "It is a tribute to our employees, suppliers, and – of course – our customers. The original deal with the Moscow government was to open a total of 20 restaurants in Moscow and nothing more."

Cohon added that another seven restaurants would open this year, followed by 10 to 15 more in 2001. Other observers attribute McDonald's Russian success to its progressive, non-Soviet style of management, in which the irritable, frowning faces of Russia's service industry were transformed into the smiles of the American motto: Consumer is King.

Moscow Mayor Yury Luzhkov congratulated the staff of McDonald's on its 10th anniversary in a letter stating "McDonald's up-to-date business practices, new technologies and highly qualified personnel are an example for other international businesses and young entrepreneurs to follow."

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The McDonald's restaurants in Russia offer cheaper prices than any of their Western counterparts in the United States and Europe by buying 75 percent of their food requirements locally from suppliers in Russia and the CIS. McDonald's also owns its own food-processing plant on the outskirts of Moscow that supplies meat and pies to its constituent Russian franchises as well as those in 17 other countries, mainly in Eastern and Central Europe.

For Russian families, McDonald's offers an affordable dining atmosphere, and for Moscow's teenagers, a gathering spot in the center of the city. The Tsarevs, a family of four, remarked, "there are very few, if any, restaurants to go to in Moscow, especially in the center, where the whole family can afford to eat." This statement probably rings true for many Russians, particularly those struck hard by 1998's ruble devaluation which caused inflation to soar, putting many consumer items and services out of reach for the country's then burgeoning middle class.

The 1998 crisis had its effects on McDonald's sales policy as well, forcing the company to slash its prices and cut staff and salaries, which caused reports of labor problems and gave the firm unfavorable media coverage.

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However, Glen Steeves, the vice president of McDonald's in Russia and the CIS, said that only in the final quarter of last year did sales rebound, and he declined to acknowledge that McDonald's had experienced serious labor conflicts.

McDonald's employs more than 5,000 Russian citizens and plans to hire at least 100 more per restaurant over the next few years, the company said (Source: Russia Journal Online).

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CURRENT MARKET SITUATION

A common feature that unites visitors of fast food establishments in Moscow is an average spending of Rubles. 25-60 (US$ 4-10) per meal. However, the clientele is diverse and varies depending on the daytime.

During the week, cafes are filled predominantly with younger business people unlike at nighttime and on weekends more families come with children and spend considerable amount of time at a restaurant.

After years of tense negotiations, Cohon opened a giant 600-seat McDonald’s restaurant in 1990 on Moscow's Pushkin Square. Despite the collapse of the Soviet Union, two attempted coups, two wars in Chechnya and a harrowing economic crash in 1998, McDonald's has kept growing in Russia.

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Currently McDonald's has 52 restaurants in 17 cities, mostly around Moscow, and claims to have served 250,000,000 customers over the past decade.

Surprisingly, there is still a paucity of competition. Some Western fast food chains, such as Pizza Hut and Kentucky Fried Chicken, opened in Russia with great fanfare but later pulled out.

But in a decade that has seen the Russian economy shrink by more than half and a third of the population plunged into dire poverty, the success of McDonald's seems exceptional.

"Our plan was to build 20 restaurants here, but we've opened more than twice that many," says Cohon.

Business is conducted entirely in Russian rubles that are nearly worthless outside the country. If McDonald's Canada wants to take any profit out of Russia they will have to do

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so by buying Russian products with rubles and then exporting them to Europe or North America for sale.
However, McDonalds isn't worried about exporting profits. They are investing in more restaurants and plan to eventually sell Big Macs all over the country. If the Canadian's gamble pays off and the Russian economy prospers they will make an enormous fortune for a comparatively small initial investment.

McFACTS FROM RUSSIA2

Customers served: 250 million, or the equivalent of, serving almost the entire population of Russia twice.
Big Macs sold      : 52 million, which if put side by side would be greater than the diameter of the moon.
Soft drinks sold  : 24 million litres of Coke, Fanta and Sprite, which is enough to fill seven Olympic-sized swimming pools.
French fries sold :  Seven million kilograms, which is equal to the weight of 2,300 female Indian elephants.
Number of buns produced: 359 million, which if stacked, would equal 1,623 times the height of Mount Everest.

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DISTRIBUTION CHANNELS

 Three-quarters of McDonald's products are Russian grown or produced, which has enabled the chain to avoid the devastating effects of Russia's periodic currency devaluations. McDonald's is operating a large food service and distribution, McComplex Center in Solntsevo, suburb of Moscow. It supplies McDonald's system in Russia with food products provided by over 100 local suppliers. The Center has meat, dairy, and bakery facilities.

Cohon, an irrepressible optimist and tireless promoter, says he dreams of expanding beyond European Russia and conquering the as yet hamburger-free expanses of Siberia.

 "There are cities out there with millions of people who have enough buying power for a Big Mac, but there are no Big Macs to be had," he says.  "In my mind, I cannot accept that."

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MACROENVIRONMENT

Contrary to the American culture being a winner in Russia is often met with vindictiveness and derision. Inspite of this, young entrepreneurs are side stepping the orthodox value system and embarking on new ventures.

The Russian people are best known for their drive, tenacity, hard work, and perseverance inspite of immense obstacles. Russians, on average are more educated than their American counterparts. Unlike the U.S, personal ethics and business ethics are separate in Russia. So McDonald's should forge strong personal relationships with their Russian partners & be extremely cautious with agreements, partnerships, payments, and granting credit.

The Russians also have great faith in American products. This is an excellent playground for McDonalds by playing up the American image.

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The American participative management style is not well received in Russia. So it would be best if the middle & lower management were local. Bringing in younger people should be a good move, since it will help in fusing the Western & Russian management style. Today just four Canadian experts -- down from 60 a decade ago -- are on hand to supervise 35,000 Russian employees.
A major problem facing Russia is economic disarray. In the past decade private consumption has increased only by 7% & the G.D.P has decreased by 6.1%. In this environment McDonalds has not only sustained but it has prospered which is a favorable indication for further expansion.

There should not be any major complications regarding the legal framework since it has already been in Russia for a decade.
Although with 52 outlets currently in operation the market may be saturated and there might not be enough demand for the product.

OPPORTUNITIES / THREATS ANALYSIS

Opportunities

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After the liberation the modern Russia is showing an increasing propensity towards Americanization. The McDonald's burger might be the American dream.

  1. There is lesser legal framework involved than earlier and currently there are no major competitors in the market. This is the right time to expand in a big way. During the Soviet era, Moscow had over 6,000 public catering establishments. Currently, the total number of such establishments is 4,919 of which 1,000 are fast food diners. It is estimated, that Moscow fast food market is filled only on 25-35%, and the demand for conveniently located spots where one could get a quick and inexpensive meal is constantly growing. According to Russian Market Research Group, 16% of Russians eat out at least twice a week. In January 1998, 38% of Muscovites ate in cafes and snack bars (12%) and restaurants (2%).3

Threats

  1. Many other franchises might want to enter the market now that the environment is more conducive to capitalist ventures.
  2. The union scandals and increasing propaganda about the Mc burger might result in demarketing.

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STRENGTHS / WEAKNESSES ANALYSIS

Strengths

  1. McDonald's name has excellent brand awareness, brand equity and low cost leadership

     "It's very good value for money," says Olga Savarinova, a 32-year-old shop clerk who  frequently lunches at the Pushkin Square outlet. She says a meal, with coffee, costs her the equivalent of about $4.25.

  1. There are already 52 outlets with a reputation of quality service and easy availability of food.
  2. The meal is extremely popular among the teens and children.
  1. The food is not considered of high quality or very hygienic
  2. Some clients also have complaints about the taste.
  3. Those who are strongly attached to Russian food do not think a burger is a full meal.
  4. The management needs to work on its labour handling and conflict diffusion skills.

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ISSUES ANALYSIS

  1. Should McDonalds expand?

The above information shows that there is immense opportunity for growth. Yet the company has to improve the image of the quality of its meal and work more on the reputation rather than concentrating only on image marketing.  Also it would be a good idea to come up with some dishes that appeal more to the Russian tastes.
The location of the branches is another issue. There should be a move away from Moscow toward the rest of the country eventually penetrating into Slovakia, Chechnya etc.
Special measures will have to be taken to overcome the obstacles of extreme weather conditions and technological mishaps. Distribution and communication in winter will be major issues for remotely located outlets.

MARKETING OBJECTIVES

  1. To open 20 more profitable outlets by the end of 2003.
  2. To capture maximum market share through low cost leadership and mass distribution of services.
  3. To increase the revenue by at least $15 Million by 2002.
  4. Increase consumer awareness by 30% by the end of 2003.

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MARKETING STRATEGY

TARGET MARKET              middle and upper middle-income families with children;
Urban teenagers, college students middle and lower level executives and low salaried workers.
POSITIONING                      a low cost & healthy family meal with a subtle indication to                
                                                Americanization.
PRODUCTS LINE                  The standard Mc meal.
Certain customized additions to the menu with a more Russian taste.
PRICE                                     The current pricing strategy with periodic discounts and      
                                                  promotional deals.
DISTRIBUTION
OUTLETS                              a Mc for every locality.
                                                Home delivery.
                                                Drive thrust.
SERVICE                               Clean and well maintained outlets
                                                Delivery within 10 minutes of order.
                                                Pleasant and well-trained staff.
                                                Playground for children
                                                Starting Mc shuttles for the concentrated industrial hubs
                                                & near educational institutions.
SALES PROMOTION          developing a new advertising campaign that promotes the current marketing strategy. Emphasize the idea of a healthy family meal.
ADVERTISING                     Come up with catchy slogans and attractive billboards.
                                                Promote the Mc shuttle and other additional features for e.g. playgrounds.
                                                Increase the below the line activities.
MARKETING
RESEARCH                           Increase expenditure by 10% to improve knowledge of consumer decision process and to monitor competitors.          
                                               
                                               

BIBLIOGRAPHY

  1. TheGlobalist.com
  2. Fred Weir-The Canadian Press Titled Moscow's McDonald still biggest busiest after ten years.
  3. Fast-food market in Russia-Author Olga Ananina.
  4. Strategic Management-Fred R.David.
 
 


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