BUSM1222: analyze and assess the unique resources and capabilities that contribute to McDonald’s success in the international market: International Business Case Study, RMIT, Singapore

Case 1: Launching the McWrap

Peng, M.W (2017) Global Business 4th Ed Boston, MA: Cengage Learning It is hard to believe, but McDonald’s is no longer the world’s largest fast-food chain at least measured by the number of restaurants. Subway has rocketed ahead with close to 42,000 restaurants worldwide vis-à-vis McDonald’s’ 34,000.

While McDonald’s still sells more than Subway (US$28 billion versus US$18 billion in 2013), McDonald’s seems to have lost momentum, with US sales slowing down noticeably. McDonald’s, of course, does not only compete with Subway but also with the likes of Five Guys and Chipotle.

In all three competitors, customers can see their food being prepared and feel that it is fresher and seemingly healthier. In the Fresh Wars, Subway has elevated its food preparers to become “sandwich artists”. Chipotle has bragged about its “food with integrity”, and released a short film critical of industrial farming – with a finger pointing at you know what.

In response, McDonald’s has unleashed the McWrap, a high-profile salvo in the Fresh Wars in an effort to grab customer attention. At $3.99 in the United States, the McWrap is a ten-inch, white-flour tortilla wrapped around three ounces of chicken (grilled or crispy), lettuce, spring greens, sliced cucumbers, tomatoes, and cheddar jack cheese. Customers can choose their preferred dressing; ranch, sweet chili, or creamy garlic.

Only made to order (not premade), the McWrap can be prepared in under 60 seconds. When served, it comes with a cool cardboard wrapper whose top can be zipped open. The whole thing can fit vertically in a cup holder in a car. The two-year, nine-ingredient, focus-grouped efforts to fix McDonald’s freshness problem are an amazing case study of how a multinational changes its strategy, taps into its global organization and leverages its knowledge-all under the pressure of cost reduction and local responsiveness. Dissecting what is behind the launch of McWrap, we can see at least three things.

First, the idea did not come from the United States. It came from three operations in Europe. In 2004, McDonald’s in the Czech Republic started selling the Chicken Roll-Up.

In 2005, McDonald’s in Poland introduced a tortilla sandwich, inspired by the kebab, a popular street food. In 2009, Austria pioneered the nifty cardboard container that can be unzipped. Thanks to a European food studio (which would be called an R&D lab in many other firms), these local innovations were noticed and diffused to the rest of McDonald’s organization.

Second, the attention the McWrap idea attracted from the headquarters was driven by a strategic interest in search of fresher and healthier items to outcompete rivals in the Fresh Wars. Specifically, it was the search for local responsiveness  – in this case primarily in McDonald’s home country, the United States – that identified the wrap to be a potential good fit. Americans are eating more chicken and prefer more fresh food, and the wrap might enable
McDonald’s to respond to such changing tastes.

Third, significant experimentation, learning and innovation went into the process. While the idea seemed appealing, McDonald’s did not operate on gut feelings. Led by Dan Courfreaut, executive chef and vice president of culinary innovation (whose nickname is

ChefDan), McDonald’s menu innovation team undertook intense research and numerous experiments that ultimately took two years (2011-2013) to finish. To introduce new items to a restaurant chain as large as McDonald’s was mind-boggling. The food had to be tasty, the cost low, and the time to serve short – without compromising quality. “My job,” according to Chef Dan, “is pushing ourselves without breaking the system.”

To enhance the freshness, two slices of English cucumbers were added for the first time to McDonald’s offerings. While adding a tiny bit of cucumber did not sound like a big deal, it actually was quite a challenge to McDonald’s supply chain structure.

About a decade ago McDonald’s introduced sliced apples to its menu, and it quickly became one of the largest buyers of apples in the United States. Initially, a half breast of chicken was used. But focus groups thought the wrap was a salad – with too many vegetables. Despite the rising health awareness, customers actually wanted more meat – as long as it was chicken. So the final version of the warp had a full breast of chicken.

The wrap’s name also went through intense testing. In the first trial in Chicago, it was called the Grande Wrap. But customers could not figure out what “grande” was. Then the name Fresh Garden Wrap was tested in Orlando, and it flopped too. Eventually, McWrap was chosen.

In a leaked, internal memo obtained by the media, McDonald’s admitted that it was not even in the top ten of the Millennial Generation’s list of favourite restaurant chains. Calling the McWrap a “Subway buster”, the memo suggested that “McWrap offers us the perfect food offering to address the needs of this very important customer to McDonald’s”. When asked to elaborate, a McDonald’s spokesperson noted: “We want to remain relevant to all of our
customers.” Whether McWrap will prove to be relevant to customers remains to be seen – or tasted.

Answer both questions 1 and 2

Question 1

From a resource-based view, analyze and assess the unique resources and capabilities that contribute to McDonald’s success in the international market?

Question 2

Analyze the international business strategies used by McDonald’s using the integration responsiveness framework. How does McDonald’s react to the pressures in cost reduction and local responsiveness?

Case 2: Big Opportunities For Small Vineyard Overseas

Dr. Boaz Bernstein, JCU, Cairns (2013). Parts adopted from Rambruth, Welch. Cases in International Business. Pearson. The Austrian government, wine and brandy association (2013).

When Jane Lafayette’s grandfather died last year she inherited his vineyard, Petit Hunter, in the Hunter Valley in New South Wales. Jane has been working for her grandfather since she graduated from university 5 years ago with a degree in international business. Today, one year after taking over the business, Jane has devised a new corporate strategy because she believes small to medium-sized wine producers are under serious economic threat from the ‘big
players in an already over-supplied industry.

In particular, she has two major fears for Petit Hunter: one is that it will become one of the victims of the Australian push to consolidate the wine industry into a few larger multinational companies whose products are now on sale all over the world. Her second fear is of increasingly aggressive international competition, particularly from Europe and to a lesser extent from US wine imports.

‘Spanish and even California wines are now so cheap to buy in Australia that we will have difficulty in remaining competitive’, she said recently in the international wine symposium held in Sydney. ‘Go to any wine shop in Australia and you will find red and white wines on the shelves from all over Europe, let alone the United States, with price labels that are becoming impossible to beat’.

Jane’s Grandfather, Henri Lafayette, found Petit Hunter, growing grapes from his native France and producing high-quality white wines with their own distinctive flavor. The Hunter Value is well known for its red wines and Henry capitalized on the valley’s relatively small range of whites by offering a new variety; but he was an old-fashioned, traditional wine grower, unwilling to expand beyond his own relatively limited field of expertise. Nevertheless, for many years the unique features of Petit Hunter’s whites earned it substantial income; the distinctive stylish image a blue cornflower on its labels caught the attention of drinkers throughout Australia. Now Jane is aware that its future depends on finding new niche markets large enough to sustain further growth and development.

She has begun to look overseas for new opportunities around the world, to locate a new market to replace the diminishing home demand. She sees a European operation as Petit Hunter’s next possible earner. Another possibility would be an attempt to establish a niche market in the US or in China. However, Jane’s SWOT analysis of Petit Hunter’s expansion plans suggests that the initial marketing would be too expensive an operation in the US and that competition would be too strong. On the other hand European areas offer attractive openings.

In fact, her new outward looking approach can eventually see the company headquarters moving out of the Hunter valley entirely, possibly to Austria or a little further north to Bavaria. That whole region owns a rich tradition of small, intimate wine bars where Petit Hunter’s uniquely flavored white wine would find a natural home. Its reputation for beers is undeniable. Also, the sweet and fortified wines of the region are world-famous, but there might be a market for drier imported wines.

Jane hopes that the North European will eventually be of far greater commercial importance to Petit Hunter than its home base, but in any case, she says, the actual location of corporate headquarter is not really important. ‘For example, we are already selling our wines over the internet, so our actual geographic location may not be a big issue.

We have the considerable technical expertise and many years of direct and indirect sales experience. If we become the international company we plan to be, we could find ourselves selling our wines somewhere in the world 24 hours a day, seven, days a week’. Jane thinks that Petit Hunter is in a shakeout mode but she is keen to follow a different path from that of cut-throat capitalism. She is looking for niche markets where social and environmental issues are part of a moral as well as a financial economy.

This is the main reason why Jane is attracted by overseas incentives of governments of emerging economies to export Petit Hunter’s skills. ‘We have been approached by one such government already, in China, she says, who would be willing to subsidize our entry into the market in exchange for training their local people in viticulture’.

The Chinese government offers export assistance programs for wine companies seeking new export opportunities in China. Eligible wine growers, can also access office facilities and support staff under the Access China Program. This is a very exciting possibility because it would provide not only another opportunity to diversify but also to continue the tradition my grandfather begun, to go to a new country and contribute to its development.

The large and growing potential wine market in China offers many exciting opportunities for wine exporters looking to market their products over the long term.

Understanding the unique characteristics of these markets and establishing relationships with experienced local importers/distributors are vital first steps in realizing this potential. China’s interest in wine has grown steadily since the 1990s. With no wine tradition of their own, Chinese are adopting wine as a healthy, new, low-cost alternative to traditional drinks like imported Cognac or Chinese spirits.

An expanding middle class, rising incomes, a growing interest in Western lifestyle and tastes, and better wine education have driven this rise in consumption. Traditionally, expatriates and 5-star hotels drove the demand for wine. But local demand has risen steadily in the last 2-3 years with supermarkets, exclusive hotels and clubs, and trendy restaurants, bars and boutiques leading the charge.

At a recent shareholders meeting Jane was warned of the cost involved in entering new markets, should it fail. Petit Hunter might be taken over by a larger company, perhaps seeking to diversify from its core business by going into the wine industry. ‘I know some such companies have become major players in our industry, however, Petit Hunter must move forward and leverage Australia’s high reputation for quality wines and our skills and competencies.

‘We can’t standstill. We have to capitalize on our strengths. Any new opportunities to leverage our unique skills in the industry will be limited if it sticks to one country. Our corporate culture is also changing rapidly. We have begun as a small, local enterprise.

Now our managers and employees are thinking globally. We have had four international distributors contact us in the past week and the growing international demand for Australian wine generally provides opportunities for Petit Hunter’, says Jane.

Question 3 

Porter’s five forces is a framework for assessing and evaluating the competitive strength and position of a business organization. Create a five-forces analysis for Jane’s proposed overseas expansion in the European and in the Chinese markets.

Question 4 

If you were an international well-known business consultant, what problems or risks can you identify in Jane’s plans for global expansion?

Question 5

What entry strategy would you advise Jane to follow in the European and in the Chinese markets? Your answer on entry strategy should consider why, where, when, and mode of entry to international markets.