Project: McDonalds and Hindu Culture

Submitted By:

Submitted By: 1. Connie Li 2. Elizabeth Sobel 3. Deep Kakkar 4. Maria Rutledge 5. Panna Patel

Table Of Contents

Table Of Contents 2

Gaining Familiarity 3

Stakeholders 4

Recognizing Symptoms 4

Controversy Analysis 5

Consequences To Controversy 5

Steps taken by McDonald’s to win customers’ trust 6

Identity and Relationship Based Issues 8

Conducting the SWOT Analysis 9

Strengths 9

Weaknesses 9

Opportunities 9

Threats 10

Challenges 10

Making the Diagnosis 11

Goals 11

Doing the Action Planning 13

Increasing Its Successes 14

Reducing Its Weaknesses 15

Tapping Into Its Weaknesses 16

Minimizing Its Threats 16

Conclusion 17

Alternatives 17

Correction to text 17

Appendix 18

Bibliography 32

Gaining Familiarity

Some people might believe that India is a country with a single culture, but India is in fact comprised of more than five thousand different ethnic communities. “Each region and Sub-region in India has distinct food traditions and preferences…fast foods such as Samosa ,Bhel-puri, Chola bhatura, Pakoda, Aloo-bhurji,, Pav-bhaji, Dosa, and Sambar vada are popular among Indian consumers” (Dyson and others, 2004).

In 1990, McDonald’s, Wendy’s and Burger King all announced that they were switching to vegetable oil to reduce the fat content in their fries. Previously, they cooked their fries in tallow, which is defined as “hard fat obtained from parts of the bodies of cattle, sheep or horses, and used in foodstuffs or to make candles, leather dressing, soap and lubricants.” In order to compensate for the changed taste of their popular fries, McDonald’s used a beef flavoring before distributing them to their restaurants. Under the US government's food guidelines, it was allowed to label this beef flavoring as “natural.” Vegetarians assumed that the fries were now vegetarian and McDonald’s did not try to dissuade this assumption.

In 1996, McDonald’s set its sights on India. It partnered with a local Indian company, Hardcastle Restaurants, and opened the first location in Vasant Vihar, “an affluent residential colony in India’s capital, New Delhi” (Dyson and others, 2004). McDonald’s altered its current menus to cater to Indian tastes and religious beliefs. They adopted a vegetarian menu with local spices (see Exhibit A for example of Indian sandwich) as well as new food preparation procedures. For example, the kitchens in McDonald’s India are divided into two, one half to prepare vegetarian foods and the other to prepare food with meat. Beef was taken off the menu to coincide with the Hindu lifestyle. All of the preparatory work in India proved to be successful for McDonald’s. “The McDonald’s in India are always packed with young people, children, and young parents enjoying ice creams, spicy potato wedges, [and] Happy Meals” (Dyson and others , 2004).

In 2001, three Hindu Indians living in Seattle filed a lawsuit against McDonald’s for using beef to make their French fries. Noticing that the taste of McDonald’s fries were different than its competitors and a letter from McDonald’s to a fellow vegetarian (see Exhibits B and C), Seattle-based lawyer Harish Bharti, a vegetarian Hindu, accused McDonald’s of using beef extract in its fries and lying about it. Bharti sued McDonald's in 2001 and his lawsuit grew into a class-action lawsuit. Eventually Hindus, Sikhs, Jews, Muslims, vegetarians and vegans joined Bharti because the beef flavoring violated each party’s dietary laws.

In 2002, McDonald's issued a formal apology (Exhibit D), promised to improve its disclosure of ingredients, created an advisory board and paid a $10 million settlement. The funds were distributed to organizations that provide charity and education to consumers who have dietary restrictions related to the McDonald’s controversy. For a list of the organizations, see Exhibit E in the appendix
Stakeholders
The major stakeholders of this controversy are McDonald’s board, managers, shareholders, franchise owners, vegetarian customers and Indians. The minor stakeholders are McDonald’s other customers whose trust in the company is jeopardized by this controversy.

Recognizing Symptoms

McDonald’s first denied but then admitted that it used beef extract in its oil. It settled the lawsuit for $10 million, publicly apologized to “Hindus, vegetarians, and others for failing to provide the kind of information they needed to make informed dietary decisions at our U.S. restaurants,” and promised to improve its labeling of ingredients and find a beef extract substitute for its oil. McDonald’s admission of using beef extract provoked an outcry in India. Hindu nationalists in Delhi publicly protested against McDonald’s by shouting slogans at one McDonald’s restaurant, damaging $45,000 worth of property at another, picketing at the company’s Indian headquarters and demanding that their prime minister close McDonald’s 27 Indian restaurants. The company’s franchisers publicly denied using beef extract in their oil; some protestors responded that they would submit the fries to a laboratory test to determine the franchisers’ veracity.
In the long-term, this controversy appeared to have a minor impact on McDonald’s financial performance in India. By 2003 the company opened 11 more restaurants and as of September 2006, there are 92 restaurants in India with 57 in the North Zone and 35 in the West Zone (www.mcdonaldsindia.com). Customers say that they visit McDonald’s because their children “[enjoy] the ‘American’ experience, the food [is] of consistent quality, and the toilets [a]re always clean.” (Hill, International Business: Competing in a Global Marketplace, p.122).

Controversy Analysis

One of the core issues is that vegetarians and consumers following kosher and halal dietary laws trusted McDonald’s for selling food that was consistent with their dietary protocols. They assumed that McDonald’s French fries were free of animal products because the company said that the fries were natural and made with vegetable oil. This was a certainty until McDonald’s admitted that its North American restaurants used beef extract in the oil that they used to make their fries. McDonald’s admission meant that its customers in general could no longer trust the company’s words. The lawsuit and Indian public outcry are symptoms of broken trust in McDonald’s words, accountability and respect towards vegetarians and others who follow kosher and halal dietary laws. Lawsuit plaintiff Harish Bharti expresses this perspective. “I have been violated again and again for over a decade by this company,” he states. “I have eaten their French fries trusting their claim that they stopped using beef tallow over a decade ago . . . I am particularly offended, in fact, I feel violated that I was taken for a ride, especially since I am a Brahmin” (hbharti.com/h_bharti_mcd/mcdonalds_suit.htm, Septebmer 2006). This statement shows that the issue is identity-based: I am a vegetarian and based on my belief that cows are sacred, serving French fries with beef extract means that my value and belief systems are threatened. (See Exhibit F for a newspaper interview with Harish Bharti.)

Consequences to Controversy

There was much backlash in India in response to the discovery of beef extract in French fries in the United States. Several Hindu fundamentalist groups, including the Shiv Sena, Vishwa Hindu Parishad and Bajrang Dal, protested and staged demonstrations in front of McDonald’s Delhi headquarters to protest alleged use of beef extract. They demanded that the prime minister close all of McDonald’s restaurants in India. The Bajrang Dal also “charged into a Bombay suburb outlet and smashed furniture and ceiling lights….Mobs ransacked the outlet at Thane, broke the glass panes and smeared McDonald’s mascot Ronald with cow dung…Company officials estimated the loss to the outlet at Rs 2million.” (See Exhibit G for a photo of angry Indian protestors demanding the shutdown of McDonald’s and police trying to control the mob.)
Meanwhile, the Shiv Sena party leader announced that they “would adopt a ‘tough posture’ if the doubts about the product proved correct.” Vishwa Hindu Parishad, which is “dedicated to serving the interests of Hinduism worldwide,” announced “that they would not seek any further action again the McDonald’s till they secured legal advice.” They “charged that ‘since the company had lied in the U.S., there was a possibility of the same being done here in India.’” (‘Quit India , sena tells Mcdonalds’-By staff reporter, The Hindu snday May 06 2001).

Steps taken by McDonald’s to win customers’ trust

In attempt to win back customers’ trust and respect and demonstrate its accountability, McDonald’s admitted wrongdoing and promised to increase its transparency and accountability. It stated: • “We acknowledge that, upon our switch to vegetable oil . . . mistakes were made in communicating to the public and customers about the ingredients in our French fries and hash browns. Those mistakes included instances in which French fries and hash browns sold at U.S. restaurants were improperly identified as ‘vegetarian.’” • “We regret we did not provide these customers with complete information, and we sincerely apologize for any hardship that these miscommunications have caused among Hindus, vegetarians and others. We should have done a better job in these areas, and we’re committed to doing a better job in the future.” • “McDonald’s has enhanced its disclosures concerning the source of ingredients in its food products. This information is available at McDonald’s website, www.mcdonalds.com, and will be available at each store.” • “McDonald’s has created a Dietary Practice/Vegetarian Advisory Panel consisting of experts in consumer dietary practices that will advise McDonald’s on relevant dietary restrictions and guidelines, which McDonald’s and others can use for marketing to persons who follow those restrictions” (hbharti.com/h_bharti_mcd/mcdonalds_suit.htm, September 2006).
In addition, McDonald’s India, a privately and locally owned company, issued its own responses to prevent further backlash: • “McDonald's India categorically states that French fries that we serve in India do not contain any beef or animal extracts, of whatsoever kind. Right from the processing stage until it is cooked and served to the customer, we only use 100 percent vegetable oil in India” (4 May 2001, “No Beef in McDonald’s Fries,” BBC News, http://news.bbc.co.uk/2/hi/south_asia/1312774.stm, September 2006). • “We do not use beef or pork. We also do not use any animal flavouring or extract for any of our vegetable products, including French fries. All vegetarian products are 100 per cent vegetarian. . .We have even developed an egg-less mayonnaise in India and there is complete physical segregation of our vegetarian and non-vegetarian products right from our supplier's end until it reaches our customers in our restaurants” (9 March 2002, “Animal Flavouring—McDonald’s Indian arm says it’s clear,” The Hindu Business Line, September 2006).
The second issue at stake is what McDonald’s symbolizes. McDonald’s has the power to attract millions of customers. It is a symbol of America and its political, economic and cultural dominance in the world. McDonald’s symbolizes America’s spread of capitalism, this economic system’s affiliated culture of materialism and the increasing influence of the West in the non-Western world. When India opened its doors to McDonald’s, it was allowing not only the company but its affiliated symbol to be present in its country. India trusted that the company would contribute to the country’ prosperity; it implicitly trusted that it would customize its ways to respect Indian customers. As shown in the statements in the previous section, trust was violated when McDonald’s admitted misrepresenting its French fries in the U.S.

Identity and Relationship Based Issues

This controversy is not only an identity-based conflict but a relational-based one: the West versus the non-West. When McDonald’s enters a new country, it symbolizes the West’s presence in that country, and its expansion in a country represents its growing influence. While some citizens of the host country may welcome its presence, others may feel threatened, as if there is a foreign invasion on its territory. They may perceive McDonald’s as threatening their traditional way of life and their local restaurants, just as when Wal-Mart opens stores in new communities, locally owned stores die under the competition of this multinational corporation, whose scale enables it to consistently beat its competitors’ prices and eventually their businesses. This threat is expressed in an India Times article: “Come to think of it, McDonald’s globally is the symbol of everything wrong — junk, fast, alien and fattening food, and American to boot” (4 August 2006, “There are lessons to be learnt from McDonald’s India,” The Economic Times/India Times, http://economictimes.indiatimes.com/articleshow/1849838.cms, September 2006). Out of globalization has emerged interdependence between countries, their companies and customers. Because they are interdependent, both sides reap benefits and pay costs. In this case, McDonald’s benefits by having a huge marketplace and the customers have the American experience, food that consistently tastes the same and toilets that are consistently clean (Hill, International Business: Competing in a Global Marketplace, p.122).

McDonald’s issued an apology, paid a settlement and took other steps previously mentioned because it knows that jeopardizing trust could decrease its customer base not only among customers with dietary restrictions but all of its other customers around the globe. Therefore, ignoring this controversy would have closed doors to markets that it has not yet entered and jeopardized markets that it is already in. The key to addressing its damaged trust and respect is to build upon its strengths, reduce its weaknesses, tap into its opportunities and minimize its threats.

Conducting the SWOT Analysis

Strengths

To begin, McDonald’s has three significant strengths: 1. McDonald’s has the “first-mover” advantage. It was the first major chain fast food restaurant to penetrate the Indian market. 2. It has no major competitor in India. There are lots of local “mom and pop” burger joints but no branded chain restaurant such as McDonald’s. 3. McDonald’s conducted extensive research before opening up restaurants in India. That research saved the company significant amounts of time and resources because it enabled the company to be proactive about learning the culture, customs and religions of Indians. 4. McDonald’s brand name. Around the world, it is a symbol of quality, cleanliness and consistency.

Weaknesses

McDonald’s has two major weaknesses: 1. It hid the facts about the beef extract in its fries. By doing so, customers do not know if they will be able to trust the company in the future. 2. McDonald’s did not take a proactive approach to the controversy. Once the issue was raised in the U.S., McDonald’s should have proactively issued a statement to all of the countries that it is in. Instead, it waited for the news to travel to India and allowed uproar within its Indian customer base before addressing the situation. The company should not have allowed the situation to escalate in India as it did because its Indian counterparts do not use beef extract.

Opportunities

McDonald’s has three major opportunities: 1. Its formal apology allowed it the opportunity to regain or strengthen its customer base. It stepped up to the plate and took responsibility for its actions. 2. This situation provides McDonald’s with the opportunity to learn more about the Indian culture, along with the array of major religions that reside in India, in order to better serve its Indian customers in the U.S., India and other countries around the world. This was an opportunity not only to learn Indian culture, values and norms in greater detail but also to realize that the chain may need to acquire more knowledge about cultures in order to ensure that it does not offend another customer base in the future. 3. This situation gives McDonald’s the opportunity to start thinking about and planning how it can better serve its Hindu, Muslim and vegetarian customer segments in the United States, particularly because these groups are growing in size.

Threats

McDonald’s has two significant threats: 1. The issue at that time presented a threat that all of McDonald’s restaurants in India could have closed amidst the havoc and uproar. 2. McDonald’s could lose the Hindu and vegetarian customer sector due to lack of trust. If this customer base cannot reestablish its trust, then it will be hesitant of eating at McDonald’s.

Challenges

McDonald’s has faced two challenges with the Indian market: 1. Going forward, McDonald’s must understand how to avoid hurting religious sensibilities of Indian consumers. The chain needs to better understand the religion, culture and the impact it can have on the success of McDonald’s in other countries as well as the United States. Since the U.S. has become a melting pot of various cultures and religions, McDonald’s will need to conduct its research at a much deeper level than it has done in the past. 2. In the future, McDonald’s must understand how to handle political confrontation with the Indian government and political activists. With the beef fat/french fry issue, the chain handled the situation with a reactive approach, i.e., McDonald’s waited for the news to travel to India before clarifying that the fries in India do not contain beef fat. In times where such extreme issues concerning religion are brought to a business’ attention in one country, the business must address that issue in all the places that it operates in an effort to ease and calm customers. McDonald’s allowed the people in India to become frustrated and furious with the chain before it addressed the issue. Even though it was a non-issue in India, people still need reaffirmation that their trust is not being trampled on.

Making the Diagnosis

It has been almost ten years since McDonald’s entered the Indian market. When McDonald’s made headway into the Indian market, it was met with much hostility and opposition from nationalists. Now, however, McDonald’s expects “to double its turnover every three years in the next decade” and “has plans to open 20-22 new outlets, including one in Calcutta, which will be its first outlet in the eastern region.” Bakshi, which is from one of the two joint ventures, Connaught Plaza Restaurants Pvt. Ltd., which is responsible for the Northern region, and Hard Castle Restaurant Pvt. Ltd., which oversees the Western region, say, “we are expected to invest around Rs. 4 billion ($85.88 million [U.S.]” (Hindustan Times, 2006).

Goals

McDonalds other goals include global expansion, creating a menu that conforms to Indian culture as well as major religions in India (Hinduism and Islam), and regaining the Hindu nationalist customer base McDonald’s lost after the lawsuit.

Global expansion is a quantifiable goal. One can see how many McDonald’s restaurants have opened up all over the world since the lawsuit, specifically in the United States and India. The creation of a menu that conforms to Indian culture and religions is another quantifiable goal. The McDonald’s India menu is proof that it is actively pursuing and achieving this goal.
As for the goals of the three businessmen that filed the lawsuit in the United States, they were successful in making the Hindu and vegetarian population aware that McDonald’s U.S. restaurants were misrepresenting their French fries and benefiting consumers – those with vegetarian, kosher and halal diets – with a $10 million settlement. This settlement is quantifiable proof that the plaintiffs were successful in reaching their goals.
The goals of the Hindu nationalists in India included making McDonald’s aware of the degree of their offense and the shutting down of the McDonald’s in India. While they showed McDonald’s how offended they were, they were unsuccessful in closing any McDonald’s restaurants.
Performances
In regards to performance, the largest challenge McDonald’s faced in India “was how to reach the large

vegetarian population…for which it had to reengineer its products and yet maintain international brand value.”

In 1999, McDonald’s created the “McAloo Tikki Burger” specifically for the Indian market. According to

Bakshi, “Today the McAloo Tikki Burger is the single highest selling product and is one of the first products to

be exported to the Middle East due to high demand” (Rediff India Abroad, editor, 5 September 2005).

How did McDonald’s become so successful even after the controversial lawsuit? How did a hamburger chain become so prominent in a cultural zone dominated by non-beef, non-pork, vegetarian and regional foods? The answer to this question lies in McDonald’s carefully planned entry and expansion strategy in accordance with India’s changing political, economic, and cultural landscape in the 1990s” (Dyson and others, 2004). In the past ten years, India’s political and economic stance has changed significantly. “As a result of India’s decade-long liberalization of economic policies, the growth rate climbed to 6% from 1992-2002 and is likely to reach 7% by 2010” (Rodrik and Subramanian, 2004). One drawback is that the “income distribution is highly skewed.” As shown in Exhibit H and Exhibit I, only 20% of the wealthiest Indians share more than 40% of the national income. At the same time, the percentage of urban population in India has increased from 21% in 1975 to more than 28% in 2004. It is likely to increase to 36% in 2025” (Dyson and others, 2004). McDonald’s has tapped into these political and economic changes, seeing its sales grow at the rate of 40 percent. It plans to continue its growth, as it has entered into three alliances with the Bharat Petroleum Corp Ltd (BPCL) to open outlets in its fuel stations (HindustanTimes.com, 7 September 2006). There is no doubt that McDonald’s has taken the adage think global, act local” to heart, putting it into concrete form in India.

Doing the Action Planning

McDonald’s adopted four growth strategies throughout the last decade to aid in its success in the Indian market. One of these strategies includes pricing. As shown in Exhibit I, Indian households spend on average about 50% of their incomes on food and beverages. Therefore, they are very sensitive to food prices. McDonald’s India should pursue a purchasing power pricing strategy to increase its customer base there. The adoption of such a strategy offers a useful country-specific insight on what prices it can charge in different countries, as shown in its purchasing power parity (PPP) calculations across countries. For details, see its Big Mac Index in Exhibit K.

The second strategy McDonald’s has adopted is fine-tuning its supply chain management. McDonald’s has employed the value-ladder strategy to ensure affordability and attract the largest portion of the population as possible. Vikram Bakshi, the McDonald’s managing director of the Northern region in India, explains: “Our clear strategy is to bring the customers in initially and provide a range of entry-level products so that they can try new items and graduate to the higher rungs” The company sources 95% of its raw materials from 38 local suppliers (“Brand-Equity—Shaking It Up at McDonald’s,” 2004). Setting up a well-coordinated supply chain was not an easy task in India. India had poor transportation and storage infrastructure as well as lower-quality agricultural products. Thus, six years prior to the opening of the first restaurant in India, McDonald’s and its international suppliers worked together with local Indian companies to develop products that met the rigorous quality standards that McDonald’s demands. Exhibit J .An underlying principle in product development was to strictly adhere to the Indian government’s regulations on food, health and hygiene and exceed those government standards.

The third growth strategy has been location. McDonald’s initially opened in Mumbai and Delhi, two large Indian cities with a metropolitan culture and significant Western exposure. In Delhi, McDonald’s partnered with a railway station and a bus station to open its outlets and set up drive-thru outlets along national highways. The two drive-thru outlets on the Delhi-Agra and Mumbai-Pune Highways have proven to be very successful. McDonald’s has also set up outlets at shopping malls and new multiplexes in metropolitans cities similar to Delhi and Mumbai.

The final growth strategy that McDonald’s has adopted is the family and child-centric strategy. Family has become the cornerstone of this strategy. McDonald’s promotes birthday parties complete with cake, candles and toys in its television advertising aimed specifically for children. It has Happy Meals, which has toys that are a great attraction for children. McDonald’s also has created “Fun Zones,” play places that appeal to both the children and their parents inside its restaurants. The company offers attractive new promotions from time to time to attract more young adults to its outlets. In some of its newly opened restaurants, McDonald’s has provided lounges for senior citizens to relax and taste its food. McDonald’s has also introduced a home-delivery service, called “McDelivery,” which has been successful.

Increasing Its Successes

To increase its success, McDonald’s should build upon its strengths, reduce its weaknesses, tap into opportunities and minimize its threats. The following paragraphs explain how it could do so.
McDonald’s could build upon its strengths by continuing to expand its operations. McDonald's India plans to invest Rs 300 crore-400 crore in the next three years to add 100-125 restaurants in the country. (‘McDonald’s India plans to expand in south’ by unknown editor, The Hindu BuinessLine, Banglore Sep 14 2006). McDonald’s could lower its prices to enable more Indians to become consumers. It has done so in some cases, as McDonald’s India recently reduced the prices of several of its popular menu items by 20 to 25 percent.

Another tactic McDonald’s could adopt is expanding its vegetarian menu. Since the controversy with the beef extract, McDonald’s has taken this strategy by introducing a “customized Indian menu,” which includes the McVeggie, McAloo Tikki, Crispy Chinese Paneer , Salsa Wrap, VegMcCurry Pan and Pizza McPuff.
Finally, McDonald’s could improve its image as a corporate social citizen. As shown on the McDonald’s India website, the company has actively done so by sponsoring the following events: • World Children’s Week • McDonald’s Blue Dot Initiative for the Education of the Girl-Child • Millennium Dreamers Global Recognition Program • Pulse Polio • The Millennium Pune Festival 2000 (Pune is the name of a city in India) • Preserving our Heritage • Keeping Our City Clean

Reducing Its Weaknesses

While increasing its strengths, McDonald’s could reduce its weaknesses by making sure that none of its menu items cause offense. The restaurant chain has tried to do so by not offering beef or pork in India and selling “only the freshest chicken, fish and vegetable products.” In addition, it could further customize its products to local tastes. It has done so by creating region-specific menu items that have spices and ingredients consistent with local taste preferences. For example, in McDonald's India North states that “70 percent of our menu is ‘Indianized', and the McAloo Tikki burger is our highest selling product” (HindustanTimes.com , 7 September 2006). The Indian culture and religion also stresses the importance of food preparation techniques. According to Falguni Bhayani, a hostess at a South Bombay outlet, "The kitchen crew does not work at the veg and non-veg stations on the same day -- there is a clear segregation. The cooking areas are different, the cleaning dusters are separate -- even the wrapping takes place separately” (The Rediff Business Special/ Archana Masih, 29 April 1999).

This strategy has been successful with another Western restaurant: Pizza Hut. KSA Technopak, a global management consulting firm, estimates that “over 70 per cent of Indian consumers prefer traditional Indian meals rather than ‘Western’ food.” (The Hindu Business Line, Ratna Bhushan, 18 December 2003.) When Pizza Hut launched its tandoori pizza, “the results were amazing -- store traffic quadrupled.” Since then, Pizza Hut has introduced numerous other flavors “tuned to Indian tastes.” (BusinessWeek/Marketing, Niti Bhan and Brad Nemer, 8 May 2006.) Domino’s Pizza India has also followed suit. According to Domino's Managing Director Arvind Nair, up to 35 percent of its pizza toppings are Indian. (Bhushan 2003)

Tapping Into Its Weaknesses

McDonald’s could tap into its opportunities by emphasizing its current selling point in its marketing materials: its quick, clean and family-friendly environment. (Bhan and Nemer, 2006). In addition, it knows that there is a small middle class and tiny elite that feels inferior about not being Western; they feel like second-rate Westerners and go to McDonald’s not for the McDonald’s experience per se but to compensate for their lack of Westernism; that is, by visiting McDonald’s they feel more Western. Therefore, it could focus on the symbolism of McDonald’s in its marketing materials. Third, the Indian economy is opening to Western businesses and Indians’ salaries are increasing, so more people can now afford to eat at McDonald’s.

Minimizing Its Threats

McDonald’s could minimize its threats by increasing menu options for its Hindu, Muslim, and vegetarian customer segments in the U.S., which is growing in size. The company has started to do so by introducing the new Asian salad to its menu. McDonald’s could also be more proactive about potential food concerns. One piece of evidence that it is doing so is by publicizing that its salads do not contain spinach, which currently is an issue. In September 2006, the National Restaurant Association, an industry trade group, recommended that restaurants remove “fresh and fresh-processed spinach and other fresh produce items that include spinach” from their menus. (“Big Mac goes spinach-less,” The Times of India, 19 September 2006, IST REUTERS). Immediately following this press release, McDonald's issued a statement saying that it had removed all of its spinach products from its menus. This was important because in September 2006, packaged spinach was found to have the toxic e-coli bacteria, which has caused illness and death. According to Medicine Net, the number of people sickened by the bacteria linked to the contaminated spinach from California's Salinas Valley had risen to 109 people in 19 states (MedicineNet.com, 2 October 2006). Clearly, taking timely action in response to current events is an important factor in the company’s performance.

Conclusion

McDonald’s should learn from its past mistakes to prevent future ones. Below are some strategies that it could have taken to prevent the controversy from reaching the level that it did, but that it can now use to prevent or mitigate future public outcries.

Alternatives

1. Along with the cash retribution and formal apology, McDonald’s could implement “beef – free French fries” all over the world since it is offensive to large consumer markets: a. Hindus that do not eat beef b. Jews that only eat beef when it is kosher c. Muslims that only eat beef when it is halaal d. Vegetarians all over the world.
1. McDonald’s submitted a formal apology to the U.S. customers. The chain could and should have offered an international apology to people of all countries where there is a McDonald’s restaurant. Even with India, the restaurant waited for the chaos to occur before they addressed the situation, even though beef fat was never present in the French fries there. It would have been better if the restaurant had taken a proactive approach to put its customers in India at ease.
2. Last but not least, if the restaurant believes that French fries with the beef fat is critical to McDonald’s revenue in the United States, the chain should offer a “beef fat-free” version of the French fries to its U.S. customers who do not wish to have beef fat added to their fries. In this way, the restaurant would portray the importance of the customer to the marketplace and regain the customer base that it lost due to the beef fat in the fries.

Correction to text

Note: Correction to a McDonald’s Statement
McDonald’s text incorrectly states that “McAloo Tikki Burger” is made from chicken. According to one of the authors of this report, a visit to a local Indian McDonald’s and their website (www.mcdonaldsindia.com/ourfood/veg/mcaloo_tikki.html), it is a vegetarian burger that consists of a bun a patty made of breaded potato and peas.

Appendix

Exhibit A: Item on Indian McDonald’s Menu
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Source : Rediff India Abroad, http://www.rediff.com/business/1999/apr/29mac5.jpg, September 2006.

Exhibit B: Letter from McDonald’s to Laura
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Source: http://hbharti.com/h_bharti_mcd/apology.htm, September 2006.

Exhibit C : Letter May Beef Up Bharti's Case - India Abroad – How Bharti Discovered Tallow in the French Fries
[pic] http://hbharti.com/h_bharti_mcd/apology.htm, September 2006.
Exhibit D: McDonald’s Apology: McDonald’s sincerely apologizes to Hindus, vegetarians and others for failing to provide the kind of information they needed to make informed dietary decisions at our U.S. restaurants. We acknowledge that, upon our switch to vegetable oil in the early 1990’s for the purpose of reducing cholesterol, mistakes were made in communicating to the public and customers about the ingredients in our French fries and hash browns. Those mistakes included instances in which French fries and hash browns sold at U.S. restaurants were improperly identified as “vegetarian”. We regret we did not provide these customers with complete information, and we sincerely apologize for any hardship that these miscommunications have caused among Hindus, vegetarians and others. We should have done a better job in these areas, and we’re committed to doing a better job in the future. As a direct result of these events, McDonald’s has enhanced its disclosures concerning the source of ingredients in its food products. This information is available at McDonald’s website, www.mcdonalds.com, and will be available at each store. McDonald’s has created a Dietary Practice/Vegetarian Advisory Panel consisting of experts in consumer dietary practices that will advise McDonald’s on relevant ditary restrictions and guidelines, which McDonald’s and others can use for marketing to persons who follow those restrictions. As part of this settlement, McDonald’s is donating $10 million to Hindu, vegetarian and other groups whose charitable and educational activities are closely linked to the concerns of these consumers Source: http://hbharti.com/h_bharti_mcd/apology.htm, September 2006.

Exhibit E: Beneficiaries of the $10 million Settlement:

Hindu: • Hindu Students Council, $500,000 • Hinduism Today Endowment, $250,000; • Council of Hindu Temples of North America $200,000; • SSV Temple, $50,000; • International/American Gita Society, $50,000;

Sikh: • Guru Harkrishan Institute of Sikh Studies, $50,000

Muslim: • Islamic Food and Nutrition Council of America, $450,000 • Muslim Consumer Group for Food Products, $100,000;

Jewish: • Jewish Community Centers Association, $200,000; • Star-K/Torah.Org, $300,000; • Orthodox Union, $150,000; • The Foundation for Jewish Campus Life (Hillel), $300,000. • CLAL, $50,000;

Vegetarian: • Vegetarian Resource Group, $1,400,000; • North American Vegetarian Society, $1,000,000; • ADAF Vegetarian Nutrition Dietetic Practice Group, $600,000; • Preventive Medicine Research Institute, $550,000; • American Vegan Society, $500,000; • Loma Linda University, $300,000 • Vegetarian Vision, Inc., $250,000;

Academic/Other: • Supporting Excellence in Education, $900,000; • Tufts University, $850,000; • Produce for Better Health Foundation, $500,000; • Division of Nutrition and Physical Activity at the Centers for Disease Control and Prevention ("CDC"), $500,000.
Source: Hinduism Today, http://www.hinduismtoday.com/press_releases/mcdonalds/, September 2006.

Exhibit F: Newspaper interview with Mr. Harish Bharti
[pic]
Source: hbharti.com/h_bharti_mcd/mcdonalds_suit.htm, September 2006.
Exhibit G: Picture of Angry Indian Protestors Demanding the Shut Down of McDonalds and Police Trying to Control the Mob.

[pic]
Source: www.hinduonnet.com/2001/05/06/stories/01060003.htm, September 2006.

Exhibit H: Income Distribution and Market Size in India (2004)
| |
|Average Annual Income in US |% of Households |Number of Households (millions) |
|0-1000 |32 |64.4 |
|1001-2000 |40 |78.4 |
|2001-3000 |13 |26.3 |
|3001-5500 |8 |15.2 |
|>5500 |7 |13.4 |
|Total |100 |197.7 |
|Source: India Economics, Merrill Lynch, Lafferty estimates, Lafferty Ltd., Cards International, February 24, 2005; |
|India: The Structure of Poverty, World Resource Institute, Washington, D.C., May 19, 2004. |

Exhibit I :Household Expenditures (% of total), 1998–99
|Food, beverages and tobacco |53% |
|Transportation and communications |14% |
|Housing and energy |10% |
|Clothing and footwear |5% |
|Health |4% |
|Other |14% |
|Source: India: The Structure of Poverty, World Resource Institute, |
|Washington, D.C., May 19, 2004. |

Exhibit J: McDonald's Supply Chain management in India .

[pic]

Exhibit K: The Big Mac Index Concept
|The Economist, a weekly news magazine published in the United Kingdom, introduced its Big Mac Index in1986 to explain the concept of purchasing power parity (PPP).|
|Given the consistency of McDonald’s Big Macproduct across countries, its price is used by The Economist to calculate exchange rates adjusted for purchasing power |
|for a sample of countries. The idea of the Big Mac as a measure of purchasing power parity is based on the Law of One Price, according to which the exchange rate |
|should adjust to equate prices of the same products between countries. By comparing the price of a Big Mac in any two cities in different countries, |
|exchange rate can be readily calculated that would make the prices equal (Exhibit 9). For should be 3.59 yuan per U.S. dollar, so that the same Big Mac costs the |
|same in New York and Shanghai. |
|Calculating the Big Mac PPP rate |
|PPP Yuan/US$ = Chinese price of a Big Mac in yuan divided by U.S. price of a Big Mac in US$= Yuan10.40 / US$2.90= 3.59 Yuan/US$, which is the exchange rate that |
|will exist if the Law of One Priceholds exactly |
|The above example makes it clear that the calculation of purchasing power parity is based on both countries, rather than necessarily equal purchasing power for |
|consumers. Given that the capita income in China in 2004 was US$5,225, while in the U.S. the average was US$34,770, it is clear that Chinese would not have the |
|same purchasing power as the average American in that year. It would cost a Chinese consumer about 6.5 times as much as a percentage of his/her income to buy a Big|
|Mac, even if the price were the same in both countries. Not surprisingly, a Big Mac costing 10.40 yuan in China may very well be a luxury good. In fact, in many |
|countries, this is exactly the case. |
| |

Source: Adapted from Robert Grosse and Adrian E. Tschoegl, “The Manager’s Guide to Big Macs,” unpublished paper, July

Bibliography

1. "Animal flavouring -- McDonald's Indian arm says it's clear." The Hindu Business Line. 08 May 2002, www.thehindubusinessline.com/2002/03/09/stories/2002030901530600.htm, September 2006.

2. Bhan, Niti and Brad Nemer. “Brand Magic in India.” Business Week. 08 May 2006, www.businessweek.com/innovate/content/may2006/id20060508_952455.htm?chan=innovation_branding_industry+trends, September 2006.

3. Bharti, Harish. hbharti.com/h_bharti_mcd/mcdonalds_suit.htm, September 2006.

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5."Brand-Equity—Shaking It Up at McDonald’s." The Economic Times: 13 Oct 2004.

6. International Business: Competing in the Global Marketplace, Fifth Edition. McGraw-Hill/Irwin, 2006.

7. Dyson, Tim, Robert Cassen and Leela Visaria. “Twenty-First Century India: Population, Economy, Human Development and the Environment.” Oxford University Press, 2004.

8. Grosse, Robert and Adrian E. Tschoegl. “The Manager’s Guide to Big Macs.” July 2004.
Hindustan Times, 07 Sept 2006.

9. India Economics, Merrill Lynch, Lafferty estimates, Lafferty Ltd., Cards International, 24 Feb 2005.

10. "McDonald's Fries: Not Done Yet." Hinduism Today. Dec 2003, www.hinduismtoday.com/archives/2003/10-12/66-67%20McDonald's.shtml, September 2006.

11. "Quit India, Sena tells McDonald." 06 May 2001. www.hinduonnet.com/2001/05/06/stories/01060003.htm, September 2006.

12. Rodrik, Dani and Arvind Subramanian. “Why India Can Grow at 7 Percent a Year or More: Projects and Reflections,” IMF Working Paper, July 2004.

13. "There are lessons to be learnt from McDonald’s India." The Economic Times/India Times. 04 Aug 2006. www.mcdonaldsindia.com, September 2006.

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16. “McDonald's apologises, pays $10 mn to veggies,”[pic]Chidanand Rajghatta, IST[pic]TIMES NEWS NETWORK, 8 March 2002.

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Recommended Readings:
1. Managing Cultural Differences: Global Leadership Strategies for the Twenty-First Century (Managing Cultural Differences Series), Philip R. Harris, Elsevier Science & Technology Books, February 2004.
2. International Business: A Managerial Perspective, Ricky W. Griffin, Mike W. Pustay, January 2004.
3. International Management: Managing Across Borders and Cultures, Helen Deresky, January 2005. PESTLE Analysis

POLITICAL
The operations of McDonalds are affected by the government policies on the regulations of fast food operation. Currently government are controlling the marketing of fast food restaurant because of health concern such as cardiovascular and cholesterol issue and obesity among the young and children in the country. Governments also control the license given for open the fast food restaurant and other business regulation need to follow such as for a franchise business. Good relationship with government in giving mutual benefits such as employment and tax is a must for the company to succeed in any foreign market. McDonalds should also protect its workers by ensuring all the hiring, compensation, training or repatriation is according to Malaysian Labor Law as stipulated.

ECONOMICS
As a business entity, McDonalds need to face a lot of economic variables outside its company or its macro environment. Dealing with international sourcing for its material McDonalds should be aware on the global supply and currencies exchange. Remember, McDonalds import most of its raw material such as beef and potatoes due to local market cannot supply in abundant to meet the demand of its product. Any upside of currencies especially dollar will be impacting its cost of purchase.

Working on the local country, McDonalds must face government regulations on tax of profit where it gains from the operation and other tax such as entertainment and restaurant service tax. Each country may have different scale or types of tax available and McDonalds should follow the regulation if it wants to continue the operation. As a franchise, McDonalds should also pay certain percentage of the revenue to the parent company in United States.
The economic condition and growth of the country also is an important indicator to the demand of products that McDonalds offered. As the food priced slightly above normal foods, not many people will have the income range to consume the products. Moreover if the economy is bad and income percapita is affected, the demand of McDonalds product will certainly going down. On the other hand the good economy also means disposable income is more and people can spend more on more expensive food at fast food restaurant.

SOCIAL / CULTURAL
The changing lifestyles of Malaysia due to development of Malaysian economy should be also taking into consideration. While more people are able financially to eat at more expensive outlet such as fast food restaurant, they have higher expectation. They want to have quality in services and more conveniences that can differentiate one restaurant from another. Young urban consumers want technology in their life and facilities such as credit card payment, wireless internet, cozy and relaxing ambient place, and other attraction for their hangout and eating. All these needs should also be taken into consideration. There is not much difference between cultural and the purchase of products in a single country but for different countries cultural sensitivity should be upheld. For example in India people (Hindu) do not take beef, Muslim countries do not take pork, German like beers, Finnish like fish type of food menu, Chinese like to associate food with something good (for example prosperity), Asian like rice and Americans eat in big-sized menu. So far McDonalds has shown good efforts in localization of its menu to suit local taste but it should constantly survey and learn about local culture to better understand and design the best product for them.

TECHNOLOGY
For a fast food restaurant, technology does not give a very high impact on the company and it is not a significant macro environment variables. However McDonalds should be looking to competitors innovation and improve itself in term of integrating technology in managing its operation. For example in inventory system, supply chain management system to manage its supply, easy payment and ordering systems for its customers and wireless internet technology. Implementation of technology can make the management more effective and cost saving in the long term. This will also make customer happy if cost savings results in price reduction or promotional campaign discount which will benefits them from time to time.

LEGAL
As a certified fast food operator, there are many regulations and procedures that McDonalds should follow. For example is the Halal certification that becomes a concern to Muslim consumers. McDonalds should protect its integrity and consumer confidence by ensuring all materials and process are as claimed or must followed.
Other legal requirement that the business owner should follow as stipulated in laws are such as operating hours, business registration, tax requirement, labor and employment laws and quality & environment certification (such as ISO) in which the outlet has been certified. The legal requirement is important because the offenders will be fined or have their business prohibited from operating which can be disastrous.

ENVIRONMENT
As one of world largest consumer of beef, potatoes and chicken, McDonalds always had been critics for world environmentalist. This is because high consumption of beef causing the green house effect by methane gasses coming from the cow’s ranch. Large scale plantation has effect the environment and lost of green forest opening for plantation activities. Vegetarian environmentalist criticizes the fast-food giant for cruelty to animals and slaughtering. In Japan, once McDonalds want to introduce whale burger causing uproar because whales are endangered species. Before using paper packaging, once McDonalds also had been criticized for being insensitive to pollution because using polystyrene based packaging for its foods. Imagine millions of people purchase from fast food operator and how is the impact to world environment by throwing away those hard to recycle packaging. Our world is getting concern on environment issue and business operating here should not just care for profit, but careful usage of world resources for sustainable development and care for environment safety and health for our future generation. Critics and concern from all public or activist should be review and support if necessary to ensure we play our social responsibility better. McDonald’s Mission Statement

McDonald's brand mission is to "be our customers' favorite place and way to eat." Our worldwide operations have been aligned around a global strategy called the Plan to Win centering on the five basics of an exceptional customer experience -- People, Products, Place, Price and Promotion. We are committed to improving our operations and enhancing our customers' experience.

The mission statement of McDonald’s is a by-product of a history of fifty-two years. About half a century ago, McDonald’s corporation originated from a spark of curiosity. Raymond Kroc, a mulit-mixer salesman, was curious to know to why a pair of his buyers owned eight of his mixers. In 1954, Kroc flew out to California to visit his number one buyers as an endeavor to identify the success in their restaurant business so he can increase his sales to restaurant owners. The salesman immediately identified an increasing financial opportunity in the effectiveness and efficiency of the McDonald brother’s fast food business. Relying on the organizational system, quality, and consistency of the McDonald brother’s business Kroc negotiates the first McDonald’s national franchise agreement Kroc opened his first restaurant in Des Plaines, Illinois on April 15, 1955 and expanded throughout other neighboring suburbs, and by 1960 the 200th restaurant opened in Knoxville, Tennessee with annual sales at over $37 million. The tremendous success of the McDonald’s corporation allowed the franchiser, Kroc, to buy out the McDonald brothers for $2.7 million. Soon after, the Golden Arch logo and Ronald McDonald are introduced and in 1965 the company goes public and selling its stock at $22.50 a share. By the end of the first day of trading the price per share increases to $30. A block of 100 shares in 1965 was worth $2,250 but in the course of a successful twenty-nine years the stock splits 11 times increasing the 1965 block of 100 shares to 74,360 with a net worth of $1.8 million by the end of 1994. In the past decades, McDonald’s opened about four restaurants a day world wide and adapted its menu to the changing tastes of their customers in order to uphold their mission of being their customers “favorite place to eat.”

Business Units In spite of McDonald’s physical growth its sales began to plummet in the 1990s, however, the company continued to open annually between 2,000 and 2,200 worldwide locations. Somehow, McDonald’s was under the impression that bigger was better but its market share demonstrated otherwise. McDonald’s share of the fast food service fell from 21.7% in 1985 to 16.6% in 1995. It was evident that McDonald’s had lost focus in its customer relationship because during the mid-1990s the new restaurants were doing most of revenue that was contributing to the 16.6% market share and as a result the older franchisees were scaling behind in sales. The company attempted to change as its customers by expanding its menu with products that targeted the new health conscious trend. However, the media was relentless and described McDonald’s as the ‘the fallen arches.’ McDonalds re-strategize its goals and increase domestic sales growth and satisfy more customers’ by entering into new markets. The corporation was determined to reclaim its leading status and capture as many eating-out customers as possible. In order, to diversify its business in 1998 it acquired a minority stake in the 16-unit; Colorado based Chipotle Mexican Grill chain. As the expert of franchising, McDonalds launched Chipotle nationwide and within a year the restaurants profits s were at $ 31 million compared to $13 million in 1997. Today there are over 670 Chipotle restaurants and outshining most fast food chains by carrying higher-quality ingredients. In 1999 McDonald’s bought Aroma Café, a U.K. chain of upscale coffee and deli shops. In that same year, Donatos Pizza was added to its acquisition portfolio. In 2000 McDonald’s purchased its largest acquisition, the bankrupt Boston Market. Boston Market was well established and had a strong brand, and located in desirable locations. The acquisition was to support domestic expansion and accelerate opportunities for Chipotle Mexican Grill and Donatos Pizza. In 200, McDonald’s purchases its last acquisition by buying a 33 percent stake in Pret A Manager, an upscale urban chain specializing in hand made sandwiches. At year-end 2001, the casual dining acquisition had more than 1,000 restaurants nationwide and was the only restaurant sector that grew in that year. Although, some of the acquisitions were profiting its parent company was plagued with more problems. McDonald’s recent innovation, Made for You, backfired causing service time and labor to increase, and sales to further decrease. The company had no choice but to make its first elimination of 850 positions, of which 83% was to be in the US market. In 2001, McDonald’s reached the 30,000-store mark in 129 countries but the weak US economy and those of the many countries it operated in hampered the performance. The company only generated an increase of 4 percent in sales in 2001 but was still adamant of opening new stores, so it announced that it would only add between 1,300 and 1,400 restaurants the following year. However, in 2002 after many marketing, operational, and innovational failures the company’s profits plummet and the company posts its first-ever quarterly loss, finally, the company put the brakes on expansion and acquisitions. In 2003, McDonalds narrows its acquisition portfolio and sells Aroma Café, and Donatos Pizza. By year-end of 2006 McDonald’s sells Chipotle Mexican Grill, and by mid 2007 it also sells Boston Market. McDonalds would no longer enforce the expansion of its other brands but instead shift its culture from being bigger to learning to grow better with its customers. In 2003, McDonald’s reformulates its strategy and organizes its strengths (S), weaknesses (W), opportunities (O), and threats (T).

SWOT Analysis

Strengths

• The McDonald’s brand is one of the most well-known and recognized brands in the world, It stands for Big Mac, Chicken McNuggets and Happy Meals…Playplaces and Ronald McDonald… quick service, cleanliness, value, and convenience. The brand is also respected because of the McDonld’s System’s commintment to local communities and to adhering to the highest safety standards (mcdonalds.com). • Europe, McDonald’s largest geographical market, accounts for 35 percent of its total revenue. US, the company’s second largest market account for 34.6 percent of its total revenue. Asia, the Middle East, and Africa account for 14.1 percent of its total revenue. Latin American accounts for 7.7 percent, and Canada accounts for 5 percent of its total revenue (mcdonalds.com). The sales of McDonald’s are well diversified therefore reducing business risk, and stabilizing the growth of its revenue. • The company and its partners purchase food and its supplies from only approved suppliers. The company’s quality department ensures that ongoing product reviews are conducted, and routine inspections are performed. As a result, McDonald’s has established a well-respected record and reputation for business honesty and integrity (mcdonalds.com).

Weakness

• The concentration in physical growth has resulted in an approximate 4 percent decline in gross margins between the years of 1994 and 2003. As a result, in the past decade McDonald’s debt has more than doubled. • McDonald’s has been unsuccessful in the endeavor of capturing the taste buds of a mature audience. The most notable and miscalculated marketing attempts include the debut menu items from the 1990s such as the McLean, Arch Deluxe, pasta, and the fajita-pizza. The creation and implementation of new has cost the company millions of lost revenue.

Opportunities

• There are a number of distinct meal occasions that McDonald’s does not meet – when customers want pizza or ethnic food McDonald’s is not on the list of consumer options. McDonald’s will then test new concepts to leverage and capture additional meal occasions (mcdonalds.com). • McDonald’s is participating in the development of accepting phone orders in the developing world. In Egypt, where the setup was pioneered in 1995, deliveries now account for 27% of all McDonald's revenue and up to 80% at some restaurants. Globally, delivery sales are expected to total more than $110 million in 2007, up from $90 million last year, the company says. While that's spare change for the $21.6 billion giant, the business is growing by 20% to 30% annually, more than triple the chain's overall rate (msnbc.com). • The total of 4.5 million youngsters with mobiles included 58% of nine to 10-year-olds and 89% of 11 to 12-year-olds with handsets. Some 93% of 13 to 14-year-olds and 95% of 15 and 16-year-olds had a mobile (Daily Mail, 15 February 2005). McDonald’s clientele consist mainly of children and young adults, which account for the growing trend of mobile users that use mobile phones for texting purposes. Accepting text orders can possibly be a lucrative new venture for McDonald’s. • There are enormous opportunities for McDonald’s around the world. In the U.S., the corporation has 13,000 McDonald’s restaurants serving a population of 300 million. In Europe, the population more than twice as large as the U.S., and only operate 5,500 restaurants. In Asia/Pacific, where more than 60 percent of the world’s population lives only accounts for 6,200 restaurants (mcdonalds.com).

Threats

• Health professionals, and consumer activists accuse McDonald's of contributing to the country’s health issue of high cholesterol, heart attacks, diabetes, and obesity. • As a result of over expansion, McDonald’s neglected older franchise locations so one major threat to the corporation is the relationship between corporate level McDonald’s and its franchise dealers. • McDonald’s competitors threatened market share of the company both internationally and domestically.

“The world has changed. Our customers have changed. We have to change too” James R. Cantaloupe, Chairman and CEO, McDonald’s 2003. In 2003, the McDonald’s corporation changed its business course by implementing the best value based strategy “Plan to Win” and using all of its unique core advantages. The organizational shift has generated billions of dollars in capital, which enabled McDonald's to quadruple its dividend to $1.2 billion, and system wide sales have increased 11 percent. Recent product introductions — premium coffee, snack wraps and salads — all contributed to the domestic surge (USA Today). The company has also begun to regain the trust of health conscious consumers by investing substantial resources in a global balanced, active lifestyles strategy that addresses all three major factors--food choice, nutrition and other lifestyle information, and physical activity. Today, the “Plan to Win” strategy continues thrive and make McDonald’s the number one fast food chain in the world.