1.Discuss how the two cases in this chapter illustrate the major theme of this text: changes in the macro environment affect individual firms and industries through the microeconomic factors of demand, production, cost and profitability. Drawing on current business publications, find some updated facts for each case that support this theme.

Both the cases McDonald’s in China and Wal-Mart in Mexico show how the interplay of microeconomic and macroeconomic factors influences managers’ competitive strategies. For both of these company, expansion abroad was a strategic move that helped offset slowing in the United States. However, both cases show how companies had to understand consumer behavior in these countries and the nature of competition from both local and international sources. is prevalent that several changes in the macro environment have had an effect on the profitability of individual firms and industries. The text states that downturns in economic activity forced all the fast-food companies to develop new strategies. During this economic downturn McDonald’s was one company in particular that has developed strategies that were influenced by microeconomic changes. A great example is when McDonald’s entered the Chinese market they had to take into consideration consumer taste and acceptance in China. They had to decided whether or not to have the menu in Chinese or English and whether or not to take on the American menu or add more Chinese influenced menu items. Cost also played a part in the China market. Beef was much more expensive and so therefore could only reach a certain percentage of the people. Half of McDonald’s sales in China had been of chicken product with beef only making up 35 percent .

2. Compare and contrast McDonald’s strategies in China with those in Walmart in Mexico.
Walmart competitive strategies: Walmart changed its retail model in Mexico by retaining CIRFA’s multiple formats and local names, a segmented market strategy using different format to target different consumers. Most of this segmentation was income. The Bodega Aurrera stores were designed to appeal low income consumer with basic breads, while the Superama stores catered to the affluent with rich desserts and fancier display cases. Sales per square foot in the Mexican stores increases by 10% after this and other chains were made. In 2006, this same type of chains were introduce in Walmart US stores. The US market was considered to be more complex, so that segmentation involved ethnicity and lifestyle as well as income. Using the Census data and customer feedbacks, Walmart managers researched its customers to break them into demographic groups. Most of chains were in the company suburban areas. As it was mentioned earlier, one of the Walmart most recent strategic innovations in Mexico was open banks in its stores. In November of 2007, Walmart opened the first 4 branches of bank of Walamrt. The company had 22 bank location in early 2008 and expected to have 80 by the end of that year. This development occurred at the same time that the US senate banking committee approved a bill that would prevent retailers from owning the type of bank characters that Walmart had previously sought. Although Walmart has been criticized for its interests rates in bank of Walmart, 1% on saving account and 70% annually in consumer loans that can be used only to by Walmart items, businesses, week reported that Mexican for profit banks charge customers with poor credits between 50-120% annual interests rate. Walmart executives argued that the Mexican bank was away to provide banking services to customers who did not have access to affordable credit plans. It was expected that the Mexican government would regulate this bank similarly to the way banks were regulated in the US. Another strategy was the matching the prices. In the Mexico and even the United States on of the best strategy that Walmart uses is to offer the lowest prices and it also matches the price for the customers.
McDonalds Strategies: McDonald has engaged in a veriety of strategies to counter shifting demands. 1. Sales of happy meals to children declined 6-7% over 2001and 2002. This decline was critical to the company because happy meals accounted for 20% of the transactions, or approximately 3.5billion dollars annual revenue. Happy meals also generated increased sales to adults. In some resturants, the average adults order with a happy meal was 50% larger than those orders without happy meal. McDonald’s has dominated the market for children with its introduction of the lunched its kids meal only 1990, and children’s meal remain an insignificant businesses for wendey’s Pizza Hut, and KFC and Tacco Bell. To counter this declining happy meal trend, McDonalds has considered offering a mom’s meal, with a gift for the mother who buys the happy meal for the child. Competitive strategy also focused on the toy that comes with the meal. in 2002, McDonalds began increasing the quality of its toys and adding toys with a greater appeal to children.
2. Expansion to other business activities. part of the McDonalds response to changing consumer tastes was to purchase or acquire ownership in more formal restourant chains such as Boston Market, Chipotle, Mexican Grill, and Donato’s Pizza. These purchases could help McDonalds counter revenue declines from its traditional restaurants. In 2002 McDonald also began considering how to used its vast real state network to sale items beyond food. The company is unique in the fast food industry that it owns much of its real estate or has it tight up in long term leases, so it has to consider the opportunity cost of using the land to produce its traditional foods. In 2002, McDonalds began an experiment with Freddie Mac, the mortgage finance agency, in which information about home ownership was provided to McDonalds customers by linking computers in restaurants to Freddie Mac’s own website.
3. Cost cutting strategy: to cut cost, in the face of declining demand and the increased competition, many fast food restaurants have focused on reducing paper napkin costs. Some restaurant overstuffed the dispensers, making it difficult for customers to grab more than one napkin. Other placed the dispensers near cashiers so they could be monitored. Most fast food chains have cut the size of their napkins from a standard 13x17inches to 13x12 inches, reducing costs by 10-12% . Fast food napkins have also gotten approximately 10% thinner in the past decade. McDonalds reduced the size of its napkins 3x from 1997 to 2002 and began testing a 6.6x8.4 inch napkin. As with the other input changes, there is always balance between cutting costs and influencing demand.
4. Innovations for different tastes : Given varying tastes around the world, McDonalds has implemented different strategies with its restaurant. For example, in China, they tested rice burgers and offered triangle wraps at first, and even later on when the McDonalds menu look more like American one’s they still had to replace some products such as pickles with cucumbers or provide spicy sauce to meet their customers satisfaction.

3. What role did the policies of various governments play in influencing the international expansion strategies of both McDonalds and Walmart: McDonald had to confront both technical and political issues with its production decisions in its entry into China. Entry into Beijing’s was accomplished through an equity joint venture with the Beijing General Corp. of the Agriculture Industry and Commerce United Co. this McDonalds chose this partner because it was controlled by the Chinese government which enabled the company to receive agricultural subsidies. McDonald used the department of Agriculture’s connections to cope with barriers concerning agricultural products and also other suplier relationship and distributional channels. McDonald has also been a primary target among several multinational corporations of ant corporation, ant capitalist, and ant obesity campaigns. For example the center for the science of public interest has asked the FDA to put tabaco-style warning labels on sugary beverages. ant obesity also entered Korea and Hong Kong. To respond to these issues the McDonalds entered a partnership with educational authorities to give nutritional classes in elementary school. In 2003 McDonald also increased the price of Big Mac in China as much as 4%,but denied a report that suggested that the price increase was to cover expenses related to SARS, because other restaurants had been severely suffered from SARS outbreak as people avoided public places specially in Beijing In 2007, the All China Federation of Trade Union also accused the company of violating labor laws by underpaying part time workers in GuangZhou. McDonald was able to offset these costs by lowering other costs. In reaction to the implementation of new law, legislation in January 2008, many small and medium sized companies asked lawmakers to reconsider clauses regarding casual labor, which would allow them more flexibility in hiring temporary workers. Substantial political and economic liberalization that took place in Mexico and along with currency crisis and peso had great impact in Wal-mart’s entry success in that country. In 1988, the Mexican government passed an agreement called the Pacto, which included commitments to reductions of the fiscal deficit, tightening of monetary policy, liberalization of trade, and an income policy that covered wages, prices, and exchange rates. The Pacto was successful in reducing the inflation, but the use of nominal exchange rate-based stabilization resulted in recurring real appreciation of the peso because inflation was systematically higher than the target. This appreciation of the exchange rate exacerbated the amount of capital inflows experienced by Mexico in early1990s. The capital inflows were a results of the falling interest rates in the US and Mexican government policies aimed at attracting private capital through the privatization of banks and negotiation for free trade with the US. In 1994, when the Federal Reserve increased interest rates in the US, the net capital flows to Mexico were adversely effected.

4. What other variables other than the price appear to have the biggest impact on the demand for McDonalds products? How much influence does the company have over those variables?