Assignment 1

1. McDonalds McDonald's first made its way to Malaysia in December 1980 when McDonald's Corporation, USA gave GOLDEN ARCHES RESTAURANTS SDN BHD the license to operate McDonald's restaurants in Malaysia. McDonald's Malaysia opened its first restaurant at Jalan Bukit Bintang, Kuala Lumpur on 29 April 1982. McDonald's Malaysia now has 185 restaurants located nationwide.

The mission statement for McDonalds Malaysia is they aim to be the leader in the Quick Service Restaurant (QSR) industry by maximizing profits and through the principles of QSC & V (Quality, Service, and Cleanliness & Value) consistent with the needs of the customers, employees and community. (http://www.mcdonalds.com.my)

Each of the company will have a competitive strategy approach in order to compete in a particular market. If a company without a competitive strategy approach, it is very likely the company will encounters lots of problem and probably will lose its market share in that particular market segment. For instance, in a fast food industry, competitive strategy approach play far more important role for the quick service restaurant due to intensity of the competition. As a result, competitive strategy approach sometime will determine the life and death for a company. McDonalds as a major player in the fast food industry in Malaysia, has adopted the best cost provider strategy (Thompson, Strickland & Gamble, 2008) as its competitive strategy approach. In brief, best cost provider strategy is emphasizing on one thing which is giving the customer more value for money. This can be seen from the menu of the McDonalds where it offers McValue Meal and McSaver for customer. Apart from that, both McValue meal and

McSaver is registered under trademark so that other competitors could not use the word of ‘value’ in their menu. As it stated the word of value therefore it allows customer to create a feeling that eating McValue meal or McSaver is mean value for money.

However what makes McValue meal and McSaver even more value for money is the pricing strategy. In the fast food industry of Malaysia, McDonalds offer a complete meal which consist drinks, fries and burger but yet in a cheaper price when make comparison to its same category competitors like Burger King, Wendy’s and Carls Jr. In addition, the portion of the McValue is in the medium size as the appetite of a regular Asian is small. As a result, this allows McDonalds to price it lower. Meanwhile, the major effect of the McSaver is to target the working people who normally prefer a tea break during the work time especially those salesman and salesgirl. By offering McSaver this will attract them to have they tea break at McDonalds with cheaper price while enjoy good and comfortable ambience.

Once a company has employed one of the five generic strategies, it must also look for other set of strategy choice to complement to its choice of the basic competitive strategy. The complementary strategic option for McDonalds is offensive strategic (Thompson, Strickland & Gamble, 2008) move and the timing for McDonalds’ strategic move in the market place is as a first mover (Thompson, Strickland & Gamble, 2008). As a major player but yet to be become a market leader, McDonalds has launched a series of attack towards its competitors especially KFC.

The first attacked happened when McDonalds first introduced Ayam Goreng McD. the purpose of this attack was trying to steal the market share from its main rival KFC. In the meantime,

many offensive strategy which launched by McDonalds were the first move in the fast food industry. As many outlets of McDonalds are standalone shop which is not inside a shopping mall therefore this allow McDonalds to use this opportunity to launch even more offensive strategy but also as a first mover. After the attack with Ayam Goreng McD, McDonalds offer the prosperity burger which only available during the Chinese New Year. The prosperity burger set consist of curly fried and also orange or apple juice. In the meantime, McDonalds start offers drive through services for those outlets which is a standalone shop. Meanwhile, not long after, McDonalds again makes most of the outlets to operate 24 hours a day. This is to allow consumers to have additional selection for their supper and also those people who works till late.

As now most of the outlets are operating 24 hours basis, therefore McDonalds offer breakfast to the consumers. If without breakfast, consumers will very likely to become bored as the menu of McDonalds is the same throughout the day and night. With the current financial crisis which leads to a downturn, McDonalds came out an attack by offering a cheaper price during lunch hours but with the taste is still remain the same. All of the strategies carried out by McDonalds are the offensive strategy and many times the attack is first move where no other QSR did before like operate 24 hours a day and breakfast meal. (770 words)

2. Competition of an industry is differed from another however when analyze it, Porter’s Five-force has to be adopted. The first force and also the strongest force is the jockeying among rival sellers

in an industry. (Thompson, Strickland & Gamble, 2008) This is the strongest force because rivals or competitors will come out any idea or offensive strategy in order to capture or sustain their own market share. The competition can become more intense when the demands for the product fall. In the meantime, brand switching will also increase the degree of the competition when the cost of switching is low. Apart from that, when the product of the rivals become more standardize, the intensity will become even greater. These are some of the causes will resulted in greater competition. For example, in the fast food industry, most of the firm like McDonalds, Burger King, Carls Jr. and Wendy’s offer similar product which is burger. This appears that the competition is extreme and in addition the switching cost of the consumer is relatively low. Meanwhile, with the recent trend of healthy eating habit and financial crisis which lead to a sudden fall for the demand of fast food, this makes the fast food industry even more competitive. Due to this, McDonalds as the major player quickly came the offensive strategy like offering McLunch and also McSaver.

The next force which is the competitive pressures associated with the threat of new entrants. (Thompson, Strickland & Gamble, 2008) For the local fast food industry, the threat of new entrants is consider as relatively high. As the Malaysian government is encouraging the foreign investor to make investment in this nation, therefore the rules and regulation to set up a new fast food chain based restaurant is easy. In addition, although fast food based restaurant is being criticize as unhealthy meal, however the local government only impose the law that QSR cannot advertise in TV after signing the WTO treaties. In the recent year, local fast food industry emerged with two new players which are Carls Jr. and Wendy’s. With the emergence of the new competitors this makes the competition even worse as the market share which belongs to a particular company may be rid off by the new competitors.

Competitive pressures from the sellers of substitute products (Thompson, Strickland & Gamble, 2008) are the next aspect of the five forces. The threat which come from the substitute is consider relatively high as well due to the factor that the price are lower and more convenient for the consumers. The substitute product for burger cab be found nearly everywhere especially the Ramly burger stall. The Ramly burger stall located near or in the neighborhood of a housing area. In addition the price is lower compare to and the stall is much nearer compare to other QSR. What is more important is that this kind of competitors has never taken account into the current market share. Therefore the threat is intense and yet most of the big QSR has neglected and busy conducting head to head confrontation.

The next force that is to be taken into consideration is the competitive pressures stemming from supplier bargaining power and supplier-seller collaboration. (Thompson, Strickland & Gamble, 2008) The bargaining power of the supplier is low as the major ingredient required for fast food item are easily to find in the market as they normally use either chicken or beef. Meanwhile, many firm they already have their own poultry farm like KFC. What’s more important is that many other suppliers want to offer their service to the firm as they are big customer. This resulted to a lot of choice for the firm to select. Therefore the supplier bargaining power is low.

Determining the competitive pressures stemming from buyer bargaining power and seller-buyer collaboration (Thompson, Strickland & Gamble, 2008) was the last force to be evaluated. The bargaining power of buyer of this force is very high. This is because nowadays consumers become more selective and also more sensitive towards price. Hence they will think and make comparison between the QSR that available. What’s more crucial is that the switching cost for

the consumers is low as obtaining a burger now consumer can choose McDonalds, Burger King, Carls Jr. and Wendy’s. All these QSR offer the similar product. On top that, consumers will easily get bored when eating the same food for many times, this is also a driving force to change from one to another.

Overall the attractiveness of the local fast food industry is considered as medium. Although there are many competitors emerged, the market entry is also easy and the competition is intense, somehow around 98% of the populations in Malaysia (http://www.businesswire.com) still consume fast food. With the high percentage of population still consume fast food; this is the place that makes the industry still attractive. In addition, no firm can fully dominant the entire market therefore when a new firm entry, what it need to do is to clearly define it target segment and able to position the product right. With the competitive strategy approach that able to work, then the firm can survive and make a profit.

(770 word)

3. Life cycle is applicable to either a certain product or even a person. However, every industry also has to go through the life cycles as nothing can last or sustain forever. The industry life cycle consist of introduction, growth, maturity and decline. (http://www.referenceforbusiness.com) When examine the fast food industry as a whole, the industry life cycle is in between the growth stage and maturity stage. In clearer speaking is at early maturity and slowing growth. The reason

is that as many places in Malaysia are still not being explored especially in the East Malaysia. (http://www.dailyexpress.com.my) Although many places are not as developed as the Peninsula

Malaysia, somehow the population there is consider moderately high. However there are not much QSR available in there. On the other hand, as the GDP rises and income per capita increases, this allows consumers to have more money to spend. Because of this, teenagers also able to gain increment in their petty cash, this makes the teenagers segment even more profitable. As there are still opportunity available, this is makes the industry still under the growth stage.

In term of maturity is that when some competition from late entrants will be apparent, and these new entrants will try to steal market share from existing products. Thus, the marketing effort must remain strong and must stress the unique features of the product or the firm to continue to differentiate a firm's offerings from industry competitors. (http://www.referenceforbusiness.com) For example when KRR introduce Balinese Recipe, KFC introduce the a.m Riser, Pizza Hut introduces the European Sensation, and McDonald comes out with RM5.95 meals and so on. Besides that, as the obesity problem is getting worse from day to day and consumers are well educated, this resulted that consumers are well aware of the risk when having too much fast food. Although the fast food industry normally target on the teenagers or children but very often teenagers are changing rapidly in terms of taste and wants. When teenagers consumer too much or too often, this will create boringness among them toward the fast food products. Hence teenagers will not eat and consume fast food. Apart from that, nowadays consumers are bombarded with better choice, if a consumers want to have his meal fast, he can now enjoy it at Hong Kong style restaurant or other café type restaurant which also offer quick service while providing better and healthier meal.

A company strategic is not yet complete until the managers made the strategic how the functional parts of business, which is R&D, production, human resource, sales and marketing, finance and so on will support the main competitive strategy and complementary strategy option. It is the third step of the company’s menu of strategy option. This step is taken in order to ensure the functional strategic can comply with the other competitive strategy so that the company can achieve the main objective.

The functional area strategy that is appropriate employed by McDonalds is the marketing strategy. Almost all the McDonalds ‘outlets table are using normal design which the table are made from plastic. As the outlets are operate 24 hours a day, eventually this will become a place for consumers especially teenagers to hang out. Therefore McDonalds should create a special lounge which offer sofa seats so that they can sit comfortable and also surf the internet. This will attract more consumers especially teenagers who like hang out. In addition with the wireless Wifi service, this would create a good ambience that allows consumers to sit back and relax and this will differ from others competitors.

In the meantime, R&D should develop a non-chicken based burger like vegetarian burger or chicken or fish that made by flour. This action is to target those consumers who are not heavy or non meat eater. Other than that this also can show that McDonalds not only offer fried chicken and French fries which criticize that is not healthy but also a veggie based burger which is much healthier.

In addition, both strategies should support by the advertising campaign so that the public can know about the new service and the new products. Advertising campaign will ensure and assist the new service and the new product to success.

(700 words)

Reference Book •

Thompson, AA & Strickland, AJ & Gamble, JE 2008, Crafting & Executing Strategy 16th edn, McGraw Hill, Boston.

Website

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McDonalds, Corporate Profile (accessed on 5th April 2009) http://www.mcdonalds.com.my/abtus/corpinfo/media_press.asp?id=21

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Reference For Business, Industry Life Cycle (accessed on 31st March 2009) http://www.referenceforbusiness.com/small/Inc-Mail/Industry-Life-Cycle.html

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Business Wire, AcNeilsen (accessed on 29th March 2009) http://www.businesswire.com/portal/site/google/index.jsp? ndmViewId=news_view&newsId=20041221005644&newsLang=en

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Daily Express, McDonalds Expansion (accessed on 29th March 2009) http://www.dailyexpress.com.my/print.cfm?NewsID=41240