The Advantages and Disadvantages of McDonald’s Entry into the Kenyan Market

1.0 McDonald’s International Business Report

Executive Summary

McDonald’s is one of the largest fast food outlets in the international market. The corporation has established fast-food outlets in over 100 nations globally. The primary market entry mode of McDonald is through franchise whereby about 85% of the outlets are franchises. However, the company has not fully ventured into the African markets and as such venturing into the African market will have a significant boost to the company’s revenue.

Kenya is one of the favourable countries whereby McDonald’s can venture in because the country’s economy and fast food industry are growing at a higher rate as compared to the other East African nations. Over the years, the tourism sector has continued to flourish, and for this reason, there has been an increase in the investment of restaurants and particularly, the fast food outlets. Therefore, investing in the Kenyan market will be of benefit to McDonald’s owing to the country’s increasing rate of the economic growth and the flourishing tourism sector. Importantly, to successfully enter into the Kenyan market, there is the need for McDonald’s to understand that, a successful international market entry requires a high level of managerial responsiveness considering the political, cultural, and economic challenges that the company is likely to face. The primary method of entry mode for McDonald’s is through the Franchise model. In this case, the franchise model allows sharing of the brand identification thereby providing a strong marketing and distribution approach. In this case, the company should consider establishing their business as a franchise since a larger percentage of the Kenyan consumers prefer established brands as opposed to new brands. Equally important entering the Kenyan market as a franchise will play a crucial role in ensuring that the company minimizes risks resulting from the country’s market conditions. Therefore, it is easy for McDonald’s to enter the Kenya market as a franchise because the method is easy and also the company will be in a position of acquiring profit at a faster rate.

In the recent past, globalisation has led to an expansion of international trade and today, many international fast food companies have penetrated into the global market. With the increased rate of foreign fast food companies venturing into the Kenya market, Macdonald’s should implement various strategies that will give the company a competitive advantage as compared to rivals. One of the strategies that the company should implement is adopting a comprehensive marketing approach. For example, McDonald’s should integrate advertising, sales promotion, direct selling, and marketing as a promotion method in their marketing mix. Additionally, the company should structure the pricing of their products as well as their product’s feature based on the Kenyan citizen’s culture, level of income, and preference. McDonald’s success can mainly be attributed to the ability of the company to combine both international and domestic responsive strategies in entering the global market. In this case, the company should realize that successful foreign market entry requires a high level of managerial responsiveness aimed at addressing the cultural, political as well as the economic barriers present in the Kenya market. Usually, McDonald’s uses transnational strategy to compete for the local market. International companies that mainly utilize transnational strategy primarily aim at attaining a middle ground position between the global and multi-domestic approaches. In other words, the companies base their considerations on the local preferences in different countries. Therefore, based on this strategy, before establishing an outlet in Kenya, McDonald’s should consider making various concessions according to the product choice of the citizens. Therefore, to attain maximum benefit from the Kenya market, the company should carry out a comprehensive study concerning the Kenya market.

2.0 Introduction

The report will aim at analysing the strategies that MacDonald’s should implement in ensuring a successful entry into the Kenyan fast food market. The analysis will focus on giving the recommendations necessary to enter the international market and their relevance to the McDonald’s Company. The first part will provide the background of the Republic of Kenya as well as the background of McDonald’s Corporation. The second part will give a further analysis of the country, and mainly will focus on providing Kenyan market analysis. Besides, the report will provide various approaches that the Company should implement to venture into the global market successfully. Finally, the last part will form the conclusion of the report.

Notably, around 85% of McDonald’s outlets are franchises located in over 100 nations across the world. However, the McDonalds’s have plans of expanding the number of the franchise stores to 95%. Thus, to achieve this strategic plan, expanding the business to the international markets is a matter of urgency. In this case, one of the nations that the corporation can venture in is Kenya owing to the country’s growing economy as well as the significant expansion of the population. Besides, the state has been experiencing a decrease in inflation rate thereby raising consumer’s disposable income in addition to an increased rate of tourism. For these reasons, if McDonald’s expands to Kenya, the company is likely to increase their sales. However, various aspects such as the country’s cultural, political, legal, and economic environments may affect McDonald’s operation in Kenya. In this respect, observing the cultural, ethical as well as political practices in Kenya will be of the essence to McDonald’s.

3.0 Synopsis of McDonald’s Company

McDonald is one of most prominent fast-food companies worldwide. The Company was established by Richard and Maurice McDonald back in the year 1940. Mc Donald has since grown to over 36000 stores and franchises located in various parts of the world (McDonald’s, 2018). Notably, the Company operates in over 100 nations which have made it acquire a strong customer base, thereby making the chain a global leader based on the revenues generated from the sale of the fast food. Specifically, the outlet offers their services to over 65 million customers on a daily basis all over the world (McDonald’s, 2018).

The Company offers a regular menu in all the restaurants across the world with an emphasis on low-value prices on their products. Usually, the menu comprises of burgers, cheeseburgers, sundae, French fries, chicken sandwiches, desserts, and soft drinks. Besides, the company has invented a variety of breakfast menus, such as hotcakes, muffins, bagel, and Egg McMuffin (Hill, 2008). In addition to the revenue that the Company generates from the restaurant, McDonald has new chains which address various sectors of the fast food market. For instance, in the United States, the Company owns Chipotle Mexican Grill as well as a fresh-mix grill offering tacos and burritos. Besides, in the United Kingdom, the Corporation has established an Aroma Café a coffee joint offering coffee, pastries, and sandwiches.

McDonald benefits from the substantial global presence which has made it a market leader in both, the international and domestic fast food market. For this reason, the Company enjoys the benefits of cost reduction associated with the restaurant’s vast size and massive global presence. (McDonald’s, 2018). However, to maximize the revenue from the sale of fast food, Mc Donald’s should venture into the rapidly growing African nations such as Kenya (CNBC, 2015).

4.0 Introduction to Kenya

Kenya is an African country located in the East African region and covers an area of 580,367 km². By March 2018, the Republic of Kenya had an estimated population of 50.9 million with an annual growth rate of 2.52% percent thereby ranking 29thglobally (UNDP, 2018). The general populace median age is 19.6 years with a life expectancy of 64.3 years. About 26.5% percent of the country’s citizens reside in the urban area. Also, the nation experiences annual urbanization of 4.15%percent (UNDP, 2018).

The capital city of Kenya is Nairobi which is the most populated city in the country. The city has over 6 million residents, and over the years, it has continued to grow as many rural residents are relocating to this big city seeking employment. Notably, Nairobi is among the fastest growing cities in Africa, and specifically, it is the second largest metropolitan in the African Great Lakes. The metropolitan accommodates both, international and local investors making it the central business region of the country. Equally important, there are also other major cities in the country that support domestic and global businesses, including international fast food restaurants. Other cities in Kenya include Mombasa and Kisumu. The population of both, Mombasa and Kisumu are approximately over one million (Hofstede, 2018). Usually, the two towns serve as the major tourist destination for many tourists visiting the country. Mombasa is situated at the coastal region and consists of beautiful white beaches thereby serving as the primary tourist attraction site. On the other hand, Kisumu is located in the West of the country on the shores of Lake Victoria which is the largest tropical lake in the world.

4.1 Country Analysis

The management of the McDonald’s Company should carry out a comprehensive analysis of Kenya before expanding their business into the Kenyan market. In this case, analysis of the Economic, legal, political, and cultural environments will be of the essence.

4.2 Political and Legal Analysis

The president and the deputy president lead the Kenyan government in accordance to the Kenyan constitution. The president then appoints various cabinet secretaries who control different sectors of the Kenyan economy. Notably, the government upholds a bilateral association with the United States as well as other nations. Therefore, the positive relationship will be of benefit to the McDonald’s Company as it will make it easier for the company to penetrate in the Kenyan market. Additionally, the United States has signed multiple treaties with various nations including Kenya such as the Trade and Investment Framework Agreement (Reuters, 2018). In retrospect, the agreement has enabled International companies to invest in Kenya.

Importantly, various government policies in the Republic of Kenya can influence the operation of McDonald’s in the country. The parliament of Kenya is responsible for changing directives such as interest rate policies, tax policies as well as government expenditure policies. For instance, an increase in tax and interest rate will lead to a reduction of consumer’s disposable income. On the other hand, an increase in government expenditure will lead to an increased economic growth which means that consumer’s disposable income will also increase. In retrospect, an increase in consumer disposable income will improve consumer’s ability to purchase the fast food while a decrease will reduce the buying ability thereby affecting the business.

4.3 Economic Analysis

The Kenyan government has put more emphasis on the market-based economy characterized by minimal restrictions on international trade. For this reason, the country is regarded as the trading centre in East Africa. Notably, by the year 2016, the Kenyan GDP was $70.53 with a growth rate of 4.7% which is expected to rise shortly (CNBC, 2015). Besides, the country has experienced a reduction of unemployment rate which means that more citizens will have the capacity of purchasing goods and services. Importantly, the inflation rate of the country has significantly decreased, and by the year 2018, it had reduced from 111.8% to 4.18%. Tourism is another crucial economic factor that is likely to affect the operations of the McDonald’s Company. The country has many beautiful tourist attraction sites raging from attractive landscapes, national parks, and historic sites. In his study, Reuters (2018) found out that, the nation earns close to $1.2 billion from tourism. Therefore, with the increased number of tourists visiting Kenya, will benefit McDonald’s and thus it will lead to an increased number of sales.

4.4 Cultural Analysis

It is worthwhile noting that different nations possess diverse cultural and ethical practices and beliefs. For instance, the society the Kenyan country is characterized by power inequalities which divide the citizens into a plethora of classes; the high, middle, and lower category. As a result of the power distance, sharing information between the groups becomes a formidable challenge. Additionally, the nation of Kenya focuses more on collectivist and for this reason; many people prefer working as a group instead of individually. In this respect, McDonald’s should understand the cultural diversity of Kenya since it will allow the company to make calculated decisions concerning the investors, consumers, suppliers, and the employees.

5.0 Market Analysis

The Republic of Kenya mainly focuses on the market-based economy, and for this reason, the country is the primary commercial, economic, and logistic hub for the trade in East Africa. Precisely, the nation has successfully attracted international exporters and investors from countries such as the United States and other European countries (Hofstede, 2018). The geographical position of Kenya makes Kenyan market to be the most significant and reliable logistical hub in East Africa. Notably, Kenya is positioned at the Indian Ocean and for this reason; the country has increased access to the central shipping lanes from Asia as well as Europe. Besides, the port serves as one of the primary domestic financial hubs thereby allowing close to 70% of the Kenyans population to have increased access to the financial services (UNDP, 2018). In this respect, by investing in the Kenyan market, McDonald’s corporation is likely to make more sales because the economy of Kenya is growing at a considerable high rate.

A larger percentage of Kenya’s citizens have a mastered proficiency in the English language which is mainly used in schools, government institutions as well as in the business organizations. In retrospect, the practice has enhanced communication with the international companies as well as foreign entrepreneurs. Notably, by the year 2014, Kenya had a relatively increased rate of literacy of about 88% ranking the country as 44th in regards to the quality of education (UNDP, 2018). Therefore, venturing into the Kenyan market will benefit McDonald’s company from the strong pool of highly educated employees available in the country. Despite the fact that in the past the Kenyan government did not offer much support to the domestic and foreign investors, recently, the government has implemented various legislative and directives aimed at protecting the investors. For instance, Kenyan administrator has put in place strong fiscal discipline that has played a significant role in reducing the rate of inflation thereby allowing greater access to international companies to invest in the country. Thus, owing to these reasons, McDonald’ company will benefit from having easy access to the Kenyan market.

Since the year 1998, the mobile market in Kenya has significantly grown with mobile users increasing from ten thousand to three million (UNDP, 2018). In this case, the increased use of mobile phones has placed Kenya as among the leading nations using mobile money technology. Besides, when it comes to the issue of social media, Kenya has leveraged in using the existing social media platforms. Therefore, McDonald’s should take advantage of this development and successfully establish their market in the Kenyan market. For instance, the company can advertise their services on the various social media platforms to reach a broader market.

The fast-food business in Kenya has continued to expand attracting both local and international fast food companies into the market. The number of educated Kenyan population has increased, and today many Kenyan citizens are continuing to use fast food. For this, reason, McDonald’s should establish fast food outlets in Kenya to increase their annual sales. Notably, some of the competitors that McDonalds’s company is likely to face in the Kenyan market include; KFC, Subway, Pizza Hut, and Domino’s companies. Therefore, McDonald’s company should implement various strategies to thrive well in the Kenyan market and acquire a better position as compared to their competitors. For instance, the company should carry out a comprehensive analysis of the Kenyan market to customize their products and have a better understanding of their competitors.

Kenyan market is faced with various challenges such as security issues and corruption. With the multiple terrorist attacks such as the Westgate attack, security remains a significant concern for local and foreign investors (Reuters, 2018). Property crime as well violence is the primary concern for foreign corporations carrying out business in Kenya. Besides, corruption is a significant challenge to the foreign investors as well as the citizens which predisposes the Kenyan citizens to persistent poverty. Therefore, to overcome the difficulties resulting from the Kenyan market, McDonald’ company should have comprehensive information concerning the Kenyan market to minimize potential losses that might result for not having adequate information concerning Kenya’s market.

6.0 Strategy Recommendation to the McDonald’s Company

MacDonald’s can accrue the Company’s success to its ability to integrate both, the domestic and the international responsiveness strategies of entering the international markets. In this case, there is a need for the McDonald’s Company to recognize that successful global market entry needs a high level of managerial responsiveness (Hill, 2008). Therefore, to enter the Kenyan market, the Company should implement robust measures based on legal-political, cultural, and economic environments of the country. Also, the Corporation should make various considerations, such as entry mode, marketing, production, and international HRM issues so that their brand can successfully perform in Kenya.

To achieve a maximum benefit of venturing into the international market, the managers should adopt strategies aimed at increasing the output. In this case, to maximize the output in the Kenyan market, McDonald’s should boost the value of their products because by adding more value to the product, the consumers will be willing to pay more on the products offered by the Company. Notably, before an international Company can venture into a country, there is a need of evaluating how they would price their products by considering the income distribution of the general populace in that country, inflation rate as well as other aspects such as currency exchange rates (Thakkar &Thatte, 2014). In essence, McDonald’s should locate their outlets in the countries major cities, such as Nairobi, Kisumu, and Mombasa to target the working middle and high-class citizens.

Usually, McDonald’s uses transnational strategy to compete for the local market. International companies that mainly utilize transnational strategy primarily aim at attaining a middle ground position between the global and multi-domestic approaches (Wiesmann et al., 2014). In other words, the companies base their considerations on the local preferences in different countries. Therefore, based on this strategy, before establishing an outlet in Kenya, McDonald’s should consider making various concessions according to the product choice of the citizens. Generally, the Kenyan culture has significant concerns about the fast foods, whereby most people view them as unhealthy. With this in mind, McDonald’s should include more healthy food on their menu in the Kenyan outlets. For instance, the Company should offer food, such as fish, salad, and gluten-free hamburgers in the bid to accommodate the Kenyan citizens who have adopted a healthy lifestyle

7.0 Entry Mode and Multinational Structure

The primary method of market entry mode for McDonald’s is through the franchise model. Usually, a franchise is a distribution network that allows sharing of the brand identification which provides a strong marketing and distribution approach. In other words, the franchise outlet caters to all business operations, while the Company offers a competitive brand name as well as large pool consumers. Therefore, it is easy for McDonald’s to enter the Kenya market as a franchise because of various benefits that the firm would achieve. For instance, the franchise acquires profit at a faster rate as compared to other forms of ownership because it is easy to establish them and, especially, in the international market (Thakkar &Thatte, 2014). Besides, McDonald’s will increase their revenue by obtaining a monthly fee from the franchises in addition to the monthly base rent since McDonald’s owns the outlet. Therefore, by applying this strategy, McDonald’s will be in a better position of efficiently entering Kenyan market as well as other global markets.

Currently, there is a growing popularity of franchising in Kenya and especially for fast food brands such as Pizza Hut, KFC, Subway, and Domino’s Pizza. Most foreign companies use franchising as a major market entry mode in the Kenyan market to minimize some of the risks arising from the market conditions present in the country. Notably, international fast food franchises are thriving well in Kenya mainly because most consumers have more trust in established brands as opposed to the new brands. Most of the foreign corporations commence their operation in the Nairobi before expanding to other major cities such as Mombasa, Kisumu, and Nakuru. Notably, there are no specific laws regulating franchising businesses in Kenya, and therefore, foreign investors rely on the existing business law which includes; intellectual property law, consumer protection Act 2012, Copyright Act of 2011 as well as the common law. Most foreign companies benefit from the Trademark Act which states that the registered individual would be the franchise while the franchisor would be the legal owner of the trademark (Reuters, 2018). Therefore, by entering the Kenyan market as a franchise, McDonald will benefit from the flexibility in addition to the economies of scale in regards to the company’s operations in Kenya. 7.1 Pros of Franchising

Currently, franchising mode of market entry is the primary product distribution channels for many international businesses. The model has various advantages that make it suitable for global markets in the essence that, it allows active control of the distribution channels and other management aspects which increases the possibility of venturing into the international markets. Franchising plays an essential role in the expansion of the market for goods and services offered by the franchisor. In this case, by entering the global market as a franchise, McDonald will reach a broader market thereby increasing the number of sales. Besides, franchising enables the company to obtain additional income from the royalty payments made by the franchise. Also, the franchisor can have increased control of the market since they will be able to make rapid business venturing without direct investment as well as launch new modified products at a faster rate. Finally, the franchisor will be in a position of carrying out marketing in the remote site in a practical way since the company uses the same marketing plan in all the outlets located throughout the world.

7.2 Cons of Franchising

Franchising as a mode of market entry poses various shortcomings to the franchisor company. For instance, the franchisee may default in making the agreed loyalties which may reduce the income of the international company. Besides, the operation of the company in over sea may be affected by the illegal use of the brand name by the franchise after the termination of the contract. Additionally, the company faces the risk of losing their reputation in case the franchisee fails to meet the expectations of the consumers resulting from failed manuals and instructions. The franchisee may also hide critical information to the company such as giving a false impression concerning the market. Finally, the company is faced with a challenge of upholding confidential commercial information as the franchisee are likely to reveal useful information to their competitors.

8.0 Marketing and R&D

With the increased rate of fast food companies venturing into the international market, McDonald’s should develop marketing strategies that would put the Company in a better position than their competitors. Besides, the increased diversification of the cultural and economic aspects serves as the primary consideration when it comes to the preference of the citizens (Lawrence & Kaufmann, 2011). Trade barriers set by the government in various countries become a hindrance to the international Company from selling standardized products in multiple states. In other words, the customer’s taste will differ from one nation to another throughout the world. Mainly, the cultural differences will range from tradition, language, religion, education, and social structure.

McDonald’s will need to implement communication of the product’s features based on a marketing strategy to put the Company in a better position. For instance, the manager can use either advertising, sales promotion, direct selling, and marketing to pass on more information concerning the Company’s brands. However, in most cases, effective communication of the Company’s product is hindered by cultural barriers in various countries. Thus, the Corporation should mainly implement pull strategy of communication through the mass media advertising to reach a broader market in Kenya.

With the increased rate of commercialization experienced in the world today, it will be necessary for McDonald’s to invent new products in different countries. Therefore, in case the Company introduces new products in Kenya, it will be essential for the management to develop a comprehensive marketing strategy for the new products. Coordination of R& D and marketing is, therefore, crucial with emphasis on the consumer’s needs and preferences (Schröder& McEachern, 2005). Thus, when setting up outlets in Kenya, McDonald’s should focus on integrating marketing and production as it will play a key role in lowering the cost of production as well as promoting the brand quality.

McDonald’s company needs to develop an effective marketing strategy that will enable the company o effectively enter the Kenyan market. In this case, the company needs to adjust their marketing mix to address and identify different groups of consumers who their mode of purchasing varies from that of other individuals. However, the company should do so while keeping in mind the culture and consumer preference of the Kenyan citizens which may influence the packaging as well as the marketing strategies that the company would employ (Lawrence & Kaufmann, 2011). Some of the promotion methods that the company can use to promote the entry of the firm into the Kenyan market include direct marketing, public relations, sales, and advertisement through the mass media. Besides, the company can incorporate event sponsorship such as sports sponsorship which plays a crucial role in creating product awareness as well as boosting the corporate image.

8.1 Pricing

When entering the Kenyan market, McDonald’s should evaluate the pricing of their products based on the citizen’s level of income as an essential international marketing mix. Because the Republic of Kenya has a relatively low income, price elasticity will tend to be high. For this reason, McDonald’s should implement Experience curve pricing to drive their competitors out of the market (Lawrence & Kaufmann, 2011).In this case, McDonald’s should set a low price for their products in Kenya to increase the volume of sales in the country. Once the Company progresses down the experience curve, it will obtain a higher profit as compared to their competitors. Mainly, McDonald’s offer discounts to their consumers as a marketing strategy. The discount element of the marketing mix attracts more customers to their outlets thereby increasing the company’s sales.

8.2 Distribution

Most of the McDonald’s products are distributed from the various outlets that the company has established. That is, the corporation distributes their fast food from the restaurants, post mate’s websites as well as McDonald’s mobile applications. The company also manages kiosks which offer a variety of products such as deserts and burgers during seasonal events such as sports competition. The consumers can also order fast food through the available post mate websites as well as through the mobile applications. Importantly, the customers can locate McDonald’s outlets through the use of firm’s mobile apps such as iOS and Android OS. Therefore, this element of the marketing mix will enable McDonald’s company to effectively penetrate in the Kenyan market and attain a broader market.

8.3 Product

McDonald’s offers a variety of fast foods with the menu comprising of burgers, cheeseburgers, sundae, French fries, chicken sandwiches and soft drinks. The company is mainly recognized for its various types of burgers. However, the company has added a variety of fast food to their menus such as fish, desserts and breakfast meals. The innovation of new products as a form of marketing mix has played a crucial role in the essence that, it has enabled the company in reaching a broader market.

8.4 Supply

The success of the McDonald’s supply chain can be attributed to the founder Ray Kroc (Thakkar & Thatte, 2014). Notably, the supply system puts more emphasis on the benefits of all the parties involved in the supply chain including the employees, operators, as well as the franchise partners. For this reason, the company emphasizes on efficient communication and collaboration between the partners involved in the process. Therefore, to efficiently penetrate in the Kenyan market, the company should develop strategies for tracking the supply process by sharing the relevant information with the outlet operators and the franchises. In this case, the company should share data concerning daily sales, outlet stock levels, as well as the inventories.

9.0 Recommendations on Production

During the production of products and, mainly, the fast food, companies should aim at lowering the cost of production and, most importantly, a Corporation should emphasize on adding value to their services by efficiently meeting the consumers’ requirements. In Kenya, the government requires that any organization is ISO certified before commencing their businesses in the country. Notably, the country requires food industries and restaurant to have a health clearance from the relevant public health board (Hofstede, 2018). Thus, McDonald’s should comply with the country’s requirements before setting up their outlets in Kenya. Besides, when producing their products, they should always do so while accommodating the demands of the residents as well as having a quick response to the consumer’s demands (Fields, 2011).

Before commencing their business in Kenya, it is necessary that the Company should make various considerations regarding the location of the business. For instance, the Company should consider the technological, country, and the product factors to determine the location of their Company. In this case, because most of the middle-class citizens reside in urban areas, McDonald’s should locate their outlets in major towns, such as Nairobi, Kisumu, Mombasa, and Nakuru. With the expansion of digitalization, use of internet has become common all over the world.