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Globalization in Food Chain Industry McDonalds (INDIA)

A report submitted to Prof G. Srinivasan, Lecturer, Faculty of International Trade & Forex management, NITIE,Mumbai, in part-fulfillment of the requirements of the final examination of International Trade & Forex management.

Prepared and submitted by Bhaskar Puggal Roll No.- 120 IE-42 Course Instructor Prof G. Srinavasan NITIE ,Mumbai

Date of Submission 23nd Dec, 2013

Abstract
Globalization has affected almost every aspect of life in almost every nation. From economic to social to culture, this widespread exchange of goods, services and ideas have influenced changes around the world. Even though the cultural influence in globalization is of slight significance to policy makers, its power has tremendous consequences to the nations involved and its people. Food is an important element in defining culture. Food is the oldest global carrier of culture. Any changes in the foods that we eat, in its preparation, the way it is served and consumed diminishes the traditional beliefs of the people. One of the most influential changes came with the introduction of fast food restaurants like McDonalds into foreign countries. Transformations have taken place which could be perceived as beneficial or corrupting to that culture. According to William Gould (1996), before the introduction of McDonalds overseas fast food was almost unknown. McDonalds is the first company to try to export Americas love of fast food and changes in eating habits of other nations. McDonalds has over 1.5 million franchises in the United States and a bout half of the total franchises are outside the U.S. in over 120 countries. Reasons for selecting this company are its sound operational practices with innovative marketing strategies, its image as leading global foodservice company and one of the strongest and most recognized brand names in the world, its successful creation of its brand, its extension and expansion strategies and its successful operations in India.

Table of Contents
Title page: ..1 Letter of Transmittal: .2 Abstract: .3 Table of Contents: ..4 1.0 2.0 Introduction: ..5 Body 2.1 Country Profile: ..............................................................6 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 Macro-environmental Factors (PESTEL)7 Leading Industries (Top Five)...10 Industry Analysis (Chosen One)12 Competition Analysis (Within The Industry) 13 Government Rules and Regulations Regarding Entry Modes...17 Selective Strategy: 19 Recommendations: 20 SWOT analysis in terms of their economic condition:..21 Competition Analysis (within industries): 23

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Recommendation: .....24 Conclusion: ...27 Bibliography: 28

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Introduction
Fast food is the term given to food that can be prepared and served very quickly. While any mean with low preparation time can be considered to be fast food, typically the term refers to food sold in a restaurant or store with low quality preparation and served to the customer in a packaged form for take-out/take-away. Outlets may be stands or kiosks, which may provide no shelter or seating or fast food restaurants (also known as quick service restaurants). Franchise operations which are part of restaurants chains have standardized foodstuffs shipped to each restaurant from central locations. The capital requirements involved in opening up a fast food restaurant are relatively low. Restaurants with much higher sit-in ratios, where customers tend to sit and have their orders brought to them in a seemingly more upscale atmosphere may be known in some areas as fast casual restaurants. In October 1996, McDonalds opened its first Indian outlet in Vasant Vihar, an affluent residential colony in Indias capital, New Delhi. As of November 2004, McDonalds has opened a total of 58restaurants, mostly in the northern and western part of India. While McDonalds opened 34 restaurants in five years (by 2001), 58 restaurants in eight years (by 2004), it is now planning to add more than 90 new restaurants in the next three years. Although the initial scenes of crowds lining up for days outside the McDonalds restaurants in Delhi and Mumbai are no longer seen, Indian consumer response to McDonalds products still remains very strong. The growth of McDonalds in India is not as rapid as in China, nevertheless impressive. How did McDonalds do it? How did a hamburger chain become so prominent in a cultural zone dominated by non-beef, non-pork, vegetarian, and regional foods such as cholabhatura, kababs, bhaji, samosa, dosa, vada, sambar, bhelpuri, and rice? The answer to this question lies in McDonalds carefully planned entry and expansion strategy in accordance with Indias changing political, economic, and cultural landscape in the 1990s.

Country Profile
India. It is the seventh-largest country by area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world. Bounded by the Indian Ocean on the south, the Arabian Sea on the south-west, and the Bay of Bengal on the south-east, it shares land borders with Pakistan to the west; China, Nepal, and Bhutan to the north-east; and Burma and Bangladesh to the east. The island countries of Sri Lanka and the Maldives are to the south; in addition, India's Andaman and Nicobar Islands share maritime borders with Burma, Thailand and Indonesia. Home to the ancient Indus Valley Civilization and a region of historic trade routes and vast empires, the Indian subcontinent was identified with its commercial and cultural wealth for much of its long history.[8] Four of the world's major religionsHinduism, Buddhism, Jainism, and Sikhismoriginated here, whereas Zoroastrianism, Christianity, and Islam arrived in the 1st millennium CE and also helped shape the region's diverse culture. Gradually annexed by and brought under the administration of the British East India Company from the early 18th century and administered directly by the United Kingdom from the mid-19th century, India became an independent nation in 1947 after a struggle for independence that was marked by non-violent resistance led by Mahatma Gandhi. The Indian economy is the world's eleventh-largest by nominal GDP and third-largest by purchasing power parity (PPP). Following market-based economic reforms in 1991, India became one of the fastest-growing major economies; it is considered a newly industrialized country. However, it continues to face the challenges of poverty, illiteracy, corruption, and inadequate public healthcare. A nuclear weapons state and a regional power, it has the thirdlargest standing army in the world and ranks ninth in military expenditure among nations. India is a federal constitutional republic governed under a parliamentary system consisting of 28 states and 7 union territories. India is a pluralistic, multilingual, and multiethnic society. It is also home to a diversity of wildlife in a variety of protected habitats.

Country Facts Area: 3,287,623m sq km (1,269,219 sq miles) Population: 1.21 billion (provisional Government of India Census data, 2011) Capital City: New Delhi Languages: The official language of India is Hindi, written in the Devanagari script and spoken by some 30% of the population as a first language. Since 1965 English has been recognised as an 'associated language'. In addition there are 18 main and regional languages recognised for adoption as official state languages. Religions: India is a secular state and freedom of religion is protected under the Constitution. The main religious groups are Hindus (80.5%), Muslims (13.4%), Christians (2.3%) and Sikhs (1.9%). Currency: Rupee Government: United Progressive Alliance, a Congress-led coalition. Head of State: President Pratibha Patil

6 Prime Minister: Prime Minister Manmohan Singh

Macro Environmental factors (PESTEL)

Pestle is an analysis of the external macro environment in which a business operates. According to (2008), pestle stands for political, economic, social, technology, and environmental factors.

A.

Political Factors

The international operations of McDonalds are highly influenced by the individual state policies enforced by each government. (2001, 705) For instance, there are certain groups in Europe and the United States that clamor for state actions pertaining to the health implications of eating fast food. (2005).They have indicated that harmful elements like cholesterol and adverse effects like obesity are attributable to consuming fast food products. On the other hand, the company is controlled by the individual policies and regulations of operations. Specific markets focus on different areas of concern such as that of health, worker protection, and environment. All these elements are seen in the government control of the licensing of the restaurants in the respective states. For instance, there is an impending legal dispute in the McDonalds franchise in India where certain infringement of rights and violation of religious laws pertaining to the contents of the food. The existence of meat in their menus in India is apparently offensive to the Hindu religion in the said market. There are also other studies that points to the infringement of McDonalds Stores with reference to the existing employment laws in the target market. Like any business venture, these McDonalds stores have t o contend with the issues of employment procedures as well as their tax obligations so as to succeed in the foreign market. B. Economic Factors

Organizations in the fast food industry are not excused from any disputes and troubles. Specifically, they do have their individual concerns involving economic factors. Branches and franchises of fast food chains like McDonalds has the tendency to experience hardship in instances where the economy of the respective states is hit by inflation and changes in the exchange rates. The customers consequently are faced with a stalemate of going over their individual budgets whether or not they should use up more on these foreign fast food chains. (2004) Hence, these chains may have to put up with the issues of the effects of the economic environment. Particularly, their problem depends on the response of the consumers on these fundamentals and how it could influence their general sales. In regarding the operations of the company, food chains like McDonalds tend to import much of their raw materials into a specific territory if there is a dearth of supply. Exchange rate fluctuations will also play a significant role in the operations of the company. As stated in the paragraph above, McDonald stores have to take a great deal of consideration with reference to their microenvironment. The companys international supply as well as the existing exchange rates is merely a part of the overall components needed to guarantee success for the foreign operations of McDonald s. Moreover, it is imperative that the company be

7 cognizant of the existing tax requirements needed by the individual governments on which they operate. This basically ensures the smooth operations of the McDonalds franchises. In the same regard, the company will also have to consider the economic standing of the state on which they operate on. The rate at which the economy of that particular state grows determines the purchasing power of the consumers in that country. Hence, if a franchise operates in a particularly economically weak state, hence their products shall cost higher than the other existing products in the market, these franchises must take on certain adjustments to maintain the economies of scale. C. Socio-Cultural Factors

Articles on the international strategies of McDonalds seem to function on several fields to guarantee lucrative returns for the organization. To illustrate, the organization improves on establishing a positive mind-set from their core consumers. McDonalds indulge a particular variety of consumers with definite types of personalities. (1994) .It has also been noted that the companies have given the markets such as the United Kingdom, an option with regards to their dining needs. (2005) pointed out that McDonalds has launched a sensibly valued set of food that tenders a reliable level of quality for the respective market where it operates. Additionally, those who are aged just below the bracket of thirty-five are said to be the most frequent consumers of McDonalds franchises. (2005) The multifaceted character of business nowadays is reflected in the harsh significance of the information on the subject of the existing market. This procedure is essentially identified in the field as market research. (1997) Information with regards to the appeal and potential fields of the market would double as obstructions to the success of the company if this area of the operations is neglected. In the case of McDonalds they establish a good system in determining the needs of the market. The company uses concepts of consumer behavior product personality and purchasing decisions to its advantage. (1998) It is said to have a major influence on the understanding of the prospective performance of the organization in a particular market. (2000)

D.

Technological Factors

McDonalds generates a demand for their products. (2006) The Companys key tool for marketing is by means of television advertisements. There are similarly some claims that McDonalds are inclined to interest t he younger populations more. The existence of play spots as well as toys in meals offered by the company shows this actuality. (1995).Other demonstration of such a marketing strategy is apparent in the commercials of they use. They employ animated depictions of their characters like Grimace and Ham burglar. Other advertising operations employ popular celebrities to promote their products. The like has become endorsers for McDonalds worldwide loving it campaign. Moreover, the operations of McDonalds have significantly been infused with new technology. Elements like the inventory system and the management of the value chain of the company allows for easy payments for their suppliers and other vendors which the individual stores in respective markets deal with. The integration of technology in the operations of McDonalds tends to add value to their products. Basically, this is

8 manifested in the improvements on its value chain. The improvement of the inventory system as well as its supply chain allows the company to operate in an international context. E. Legal Factors There has been the recurrent bellowing in opposition to the fast food industry. This has similarly made McDonalds apply a more careful consideration on their corporate social res ponsibilities. On the whole, this addressed the need of the company to form its corporate reputation to a more positive one and a more socially responsible company. (2005).The reputation of McDonalds is apparently a huge matter. Seen on the website of the company, it seems that they have acquired strides to take in hand the key social censures that they have been berating them in the past decades. The company has provided their customers the relevant data that they need with reference to the nutritional substances of their products. This is to attend to the arguments of obesity charged against the products of the company. In the same way, the consumers provided freedom in choosing whether or not they want to purchase their meals. This is tied up with the socio-cultural attributes of the market on which they operate. For instance, operations in predominantly Muslim countries require their meat to conform to the Halal requirements of the law. In the same regard, those that operate in countries in the European Union should conform to the existing laws banning the use of genetically modified meat products in their food. Other legal concepts like tax obligations, employment standards, and quality requirements are only a few of important elements on which the company has to take into consideration. Otherwise, smooth operations shall be hard to achieve. F. Environment

The social responsibilities of McDonalds on the state are influential to the operations of the company. These entail accusations of environmental damage. Among the reasons why they are charged with such claims is the employ of non-biodegradable substances for their drinks glasses and Styrofoam coffers for the meals. (1997). Several civic groups in Hong Kong have made actions to make the McDonalds franchises in Hong Kong aware of the rather copious use of Styrofoam containers and the resultant abuse of the environment. (1997) further indicated that in 1995, McDonalds Hong Kong went over the Styrofoam used by both Australia and the United States combined.

Leading Industries in India

Since the advent of industrialization in India we have witnessed setting up of many new industries in various sectors. Indian industrialists after the 65 years of independence have come a long way. Some sectors have developed and some are still developing. Most of the sectors have even attracted foreign investments to the country. Following is an insight to some of the top increasingly booming industries in India.

Tourism

Tourism is one of the most important industries to any country as it is the best source for inflow of foreign currency into the country. A tourist, with him brings foreign currency and thus his every little spending is contributing in a better way to the countrys economy. Its contribution is around 6.23 % to the national GDP and generates 8.78% of the total employment. It is estimated that around US $375.5 billion will be generated by this particular sector by 2018. India being such a large and diverse destination has become a major attraction for tourists all over the world. The fact that it has 28 different states, and each one has a different and a unique culture of its own, adds to the curiosity of the tourists. There have been efforts to increase new forms of tourism such as rural, medical and eco-tourism. Medical tourism over the years has attracted a large chunk of tourists to Asia especially for plastic surgeries. India, despite having some of the world class medical facilities has suffered due to its low levels of sanitation. This remains one of the biggest hurdles in development of medical tourism here. But one of the major challenges is of security of the tourists. Domestic tourism is over 800 million. Another challenge is shortage of hotels and tourist accommodation places in the country. Lately, government has also started promoting tourism and awareness about tourism in country under the program of Incredible India.

Power Generation

Electricity has become one of the most basic necessities of ones life today. Ind ia has the 5th largest power consuming market in the world. In the 11th five year plan, the planning commission displayed electricity for all till 2012 as the aim of government but 2012 has arrived and we are not even close to this goal. Power generation sector provides great opportunities to the investors as it promises higher returns. Coal, despite being termed as major pollutant still continues to generate 55% of total power generated. Though government has taken steps to generate electricity from hydro, nuclear and solar energy but there share is still very low as compared the thermal energy.

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Hospitality industry

With increasing tourism and with the advent of modern life styles and westernization this particular sector has witnessed a sudden and massive boom. Hospitality industry is one of the worlds largest service generating sectors. In India though it is new but people are investing in it and also more people are opting for hotel management course to enter this promising industry. This sector can be divided into two; the entertainment and accommodations sectors. Discs, bars hotels have become part of the urban lifestyles. On the other hand with an increase in tourism in India has lead to need of more hotels and infrastructure.

Animation industry

This particular sector has witnessed a much required boom over the past few years. With the increasing use of 3D technology in movies and many other animation technologies, this industry has managed to create a demand for creative animators, and other technicians. According to a study this industry is growing at rate of 30% annually. A slight government help to the animation industries in terms of loan can provide a further increase and profit to new but rapidly growing industry.

Food processing industries

Food processing industry is another rapidly growing industry in India. The central government has taken many steps to increase the growth of this sector for e.g. they treat all the agro processing industries with a greater priority and responsibility. This has to some extent brought more organizational factor into the food retail and agricultural sector. This is one sector which has faced a rapid increase in the foreign direct investments. Also, over the time there has been an ever increasing demand of such goods in the Indian market. This industry is growing swiftly and is estimated to cross $200 billion till 2015. This sector currently faces major problem fetching proper investment at various stages of supply. More upgraded technology is the current need of the hour.

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Industry Analysis
Food Chain Industry The food services sector in India is expected to witness a 50 per cent increase in investments in 2012 to about US$ 750 million, as food suppliers and retail companies plan to scale up business and stay competitive by tapping the large potential of the domestic market. Of the total investments of US$ 750 million in 2012, about US$ 165 million has gone into purely front-end retail, such as fast moving consumer goods (FMCG), food and beverage firms. India is the world's largest milk producer, accounting for around 17 per cent of the global milk production, according to RNCOS research report titled, 'Indian Dairy Industry Analysis'. The study anticipates that the milk production in India will grow at a compound annual growth rate (CAGR) of around 4 per cent during 2011-2015. Further, India has emerged as one of the largest potential markets for organic food consumption globally. The organic food is invariably catching up pace among the Indian retailers, especially with the niche retailers owing to wide awakening among Indian consumers towards leading a healthy life, as per RNCOS research report titled, 'Indian Organic Food Market Analysis'. We anticipate that the sector will post significant growth during 2011-2013, growing at a CAGR of 15 per cent. Indians spend US$ 64 billion annually on eating out, which includes $13 billion on eating in quick-service restaurants (QSRs) such as McDonald's and Costa Coffee, propelling the industry to grow at 25-30 per cent annually, according to Euromonitor.

Key Players The major players operating in the Indian food and beverages industry include Dabur India Ltd, Godrej Industries Ltd, Hindustan Lever Ltd, Britannia Industries Ltd, ITC Ltd, Nestle` SA, PepsiCo, Inc, Cadbury Schweppes PLC, Future Group, RPG Enterprise and Godrej Agrovet Ltd. Among recent investments, World Bank arm IFC has reportedly put in US$ 6.5 million into food-supply chain firm Snowman Logistics. Other similar investments include Swastik Roadlines (India Equity Partners) and JICS Logistics (IL&FS Private Equity) and Staragri Warehousing and Collateral Management Ltd (IDFC Private Equity). The world's largest fast-food chain - McDonalds, is shedding its familiar red and yellow colors for more muted tones as it goes for its biggest and costliest revamp in India, in line with its global strategy of attracting more adults. The red and yellow company logo will be replaced with white across 240 restaurants.

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Competition analysis (Within the industry)

One of the major competitors for McDonald in the burger segment is KFC. It first came to India in 1995, where it was one of the first multinational food chains to have entered India. It proved not to be a very good time to have come to India where people were still not able to come to terms with multinationals coming to India, and it was targeted by many and remained a not so known food outlet, while the ones which came later became more popular. KFC India had to shut shop in the late 1990s after it faced heavy protests not only from anti-multinational groups but also animal rights protector, PETA. But unlike McDonald, KFC has not been able to establish itself and shun its image of being a beef burger shop. McDonalds is clearly poised well in terms of appeal t o the majority of the Indian population, 40% of which is vegetarian. McDonalds has a wider variety here with products starting from as low as Rs 20, while KFC has not been able to match that. KFC is still priced a little higher for the general Indian population and its strong customer segment is the cosmopolitan population which is mall going and earning or have spare money to spend, 18-30 years. While people from even small income range and lower middle class have been able to associate themselves with M cDonalds. McDonalds has set up its own supply chain investing huge amount which leads to lower costs and prices. When it comes to chicken burgers McDonalds needs to provide more variety on its menu as it is claimed that KFC is coming up with 15-20 new Indianised products. McDonalds has more than 140 restaurants in India and is adding at a fast pace, while KFC has presence only in limited areas especially the southern part of the country. KFC claims that even without much promotion it has the strongest brand recall for chicken products. KFC even sponsored a contest during a cricket match, and is a well known brand in the southern part.

Following is the marketing mix of KFC: Product Zinger is its flagship product Famous for its chicken recipe world o ver Brought high selling products from international markets Indianized menu with products like tikka wrap n; roll, chana snacker, thali, succulent chicken Vegetables, one-of-a-kind kids meal comes in several different laptop box designs featuring awesome puzzles and games. The veg products are juicy from inside and crispy on outside which differentiates KFC Distinguished manufacturing for beg and non veg products Planning to add 15-20 new products to menuPrice Low priced to target the huge middle class as well as upper class population of India Has sub 50 snackbox, and chana snacker at Rs. 25 Offers Veg and non veg thali at Rs 50 Twirl priced at Rs. 7Place There are around 40 restaurants in the country

13 Strong hold in Mubai, Hyderabad, Bangalor e Planning to add 10 restaurants per year and reach 50 by 2008 Targeting non veg eating states e.g. West Bengal, Punjab, Andhra Pradesh, Tamilnadu besides the cities where it is already present. Has switched to franchisee model Expanding and opening st ores in malls Promotion Has started a TV campaign, following which sales surged by 30% Promotion is centered around Finger Licking Good Targets mall going population i.e. youth in the age group 18-30 Food courts are sporting the logo of KFC Also sponsors cricket matches and related contests Local Food Joints Another major competitor for McDonald are the local food joints offering burgers. The local food joints include the following: 1. Joints which are limited to a city and have around 2 -3 outlets in a city. For instance Om Sweets in Gurgaon will come in this category. 2. Canteens in colleges. Following is the marketing mix for the local food joints: Product The burgers are made of local buns with cheese slices and vegetables like onion, cucu mber and tomato slices and a potato or chicken cutlet. There are two or three variations on the basis of amount of cheese The burgers are wrapped in local paper napkins The ingredients used are Indian for instance burger has no mayonnaise. These cater t o Indian tastes. The offering is generally one of the several other offerings at the joint The time taken to deliver varies from 10 15 minutes Price The price ranges from as less as Rs 12 to a max around 50. Om Sweets offers the burger for Rs 45Place These joints are generally located in market places or college campus where crowd is heavy. They are the most famous and one of the few outlets available in area and footfalls are generally heavy due to these The places are usually visited very frequently by local people, students, etc

14 Promotion The joints rely on word of mouth publicity There is no promotion done through ads for these joints. The promotion at maximum is limited to local newspaper

Suggestions McDonalds could increase the number of items served on its menu. Currently there are only 6 vegetarian and 6 non-vegetarian items served on the menu. It is also evident from the survey that many people feel that the variety of menu available is average and could be improved. Some of the customers prefer something new every time they visit. These potential customers could be targeted by increasing the number of items in the menu. In the recent times McDonalds has been blamed for the high fat content in its products and many consumers perceive that the food served at their outlets is not healthy. Also, the consumers are becoming increasingly health conscious these days. McDonalds could introduce new items for such people containing lower fat content and lower calories, like calorie free burgers and salads. This could attract a whole new segment of health conscious people to its outlets. They could introduce items containing egg in their menu which could target people who eat egg and do not eat chicken. It would also add more variety to their current menu. McDonalds currently has a number of outlets in northern and western India. The number of outlets in southern and eastern parts of the country is significantly very low. They need to increase their presence in southern and eastern India where their competitors like KFC, Pizza Hut and Dominoes enjoy a larger market presence. They also need to modify their Indian menu for these parts of the country as the names of the current menu items are more synonymous to food available in northern and western India. Considering the low cost of food available at McDonalds it could even look at expanding into tier-2 and tier-3 cities which are largely unexploited by other fast food companies. There may be stiff competition from the local food joints in these places which McDonalds can overcome by offering localized food at competitive prices. The option for home delivery is currently not available in all areas. There is also an additional Rs. 15 that is levied for the delivery in the areas where it is available. In comparison some of its competitors offer free home delivery in specified time and also in all their outlets. McDonalds could learn from its competitors and provide free home delivery in all its outlets at no additional cost in order to attract people who prefer to have food at the comfort of their home or office. This could also reduce overcrowding at their certain outlets where many people wait for their turn for dine in or takeaway. Future Outlook McDonalds India has been able to establish itse lf in the market with 137 restaurants in the country and plans for expansions to smaller cities and further in metros. Planning 15 new outlets in Kolkata alone is indicative of its expansion plans. McDonalds plans to invest $3 billion over next five years and double its revenue by 2010. The expansion plans are in sync with the booming economy.

15 The future outlook is bright considering the rising middle class and development going across the country. The number of multiplexes in the country is growing day by day through which McDonalds can expand. Moreover, the working population is also increasing. Most of them are looking for alternatives to home cooked food which could save them a lot of time between working hours. Therefore McDonalds will find a great opportunity to leverage its brand popularity to increase its sales even further. The challenge which McDonalds may face in future will be the expansion to tier 2 and tier 3 cities. McDonalds brand, which is very strong across big cities, may not be as stro ng there. The concept of fast food will also be relatively new to smaller cities which have slower life than metros. Fast food in smaller cities is synonymous to Chinese served by small vendors. The primary competition will also be very different in smaller cities. The competition will be from local food to a much larger extent. The pricing which is a critical strength in metros may not remain strength. The opportunity lies hidden in the challenge and being a pioneer in fast food segment in smaller cities, McDonalds can achieve greater heights. In the larger cities and metros McDonalds is well established and should experience a steady growth if it continues to fulfill the changing needs of its consumers which it has been doing over the past.

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Government Rules and Regulations Regarding Entry Modes:

Food processing and agro industries have been given high priority by the government with a number of important incentives and subsidies being made available. Some of the important policy changes regarding the 6 types of entry mode are as follows: Regulation and Control FDI up to 100 % is permitted under the automatic route in the food infrastructure (Food Park, cold chain / warehousing) Automatic approval to FDI up to 100 % equity in FPI sector excluding alcoholic beverages and a few reserved items Foreign investments are allowed in SSI reserved items under an export obligation (pickles, chutneys, bread, pastry, hard-boiled sugar candy, rapeseed oil, sesame oil, groundnut oil, sweetened cashew nut products, ground and processed spices other than spice oil and oleoresin, tapioca sago and its flour) FDI up to 100% is permitted on the automatic route for distillation & brewing of alcohol subject to licensing by the appropriate authority No industrial license is required for almost all the food & agro processing industries except for some items like beer, potable alcohol, wines and cane sugar. Animal fats & oils and items reserved for exclusive manufacture in the small-scale sector. Up to a maximum of 24% foreign equity is allowed in SSI sector. Fiscal policy and taxation: Rupee is now fully convertible on current account and convertibility on capital account with unified exchange rate mechanism is foreseen in coming years Repatriation of profits is freely permitted in many industries except for some, where there is an additional requirement of balancing the dividend payments through export earnings Liberal corporate tax policy is applicable for export and domestic earnings, income tax rebate allowed (100% of profits for five years and 25% of profits for the next five years) for setting up of new agro processing industries to process and package fruits & vegetables Fruits & vegetables, and dairy machineries are completely exempt from central excise duty. Central Excise duty on preparation of meat, poultry and fish, pectin and yeast is also completely exempt. Quantity restrictions on all food products have been removed. Peak rate of customs duty has been reduced from 30% to 25% (excluding agricultural and dairy products) and duty structure on designated items has been rationalized. Customs duty on refrigerated goods transport vehicles has been reduced from 20% to 10% Excise Duty of 16% on dairy machinery has been fully waived off and excise duty on meat, poultry and fish products has been reduced from 16% to 8%. Export promotion Food -processing industry is one of the thrust areas identified for exports. Free Trade Zones (FTZ) and Export Processing Zones (EPZ) have been set up with necessary infrastructure. Also, setting up of 100% Export Oriented Units (EOU) is encouraged in other areas. They may import free of duty all types of goods, including capital foods.

17 Capital goods, including spares up to 20% of the CIF value of the capital goods may be imported at a concessional rate of customs duty subject to certain export obligations under the EPCG scheme. Export linked duty free imports are also allowed. Units in EPZ / FTZ and 100% EOU can retain 50% of foreign exchange receipts in foreign currency accounts 50% of the production fromEPZ, FTZ and 100% EOU units, are saleable in domestic tariff area All profits from export sales are completely free from corporate taxes and also exempt from MAT Setting up of 60 agricultural zones for end-to-end development for export of specific product from geographically contiguous areas. 53 food parks were approved to enable small and medium F & B units to set up and use capital intensive common facilities such as cold storage, warehouse, quality control labs, effluent treatment plant, etc. 100% Automatic FDI is allowed for setting up of Industrial parks as well Regulatory framework There are different laws that govern th e food-processing sector in India. The prevailing laws and standards adopted by the Government to verify the quality of food and drugs is one of the best in the world. Multiple laws / regulations prescribe varied standards regarding food additives, contaminants, food colors and preservatives and labeling. In order to rationalize the multiplicity of food laws, a Group of Ministers was recently set up to suggest legislative and other changes to formulate a modern, integrated food law, which will be a single reference point in relation to the regulation of food products. The food laws in India are enforced by the Director General of Health Services, Ministry of Health and Family Welfare, Government of India (GOI).

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Selective strategy
Key elements of McDonalds strategies Adding 700-900 restaurants annually Being highly selective in granting franchises Focusing on limited product line & consistent quality Careful attention to store efficiency Extensive advertising & use of Mc prefix Hiring courteous personnel; paying an equitable wage; & providing good training McDonalds product strategy Friendlily, fast-served healthy food Consumers like-dislike, taste, preference, health etc. are taken into consideration. Provides quality food Adapts itself to the local culture Resources to get the Job Done McDonalds pricing strategy Value-pricing Very large cross section of the Indian population can afford it. Does not sacrifice quality for value McDonalds Place strategy Strategic location Environment at the restaurant Games on every table Clean, comfortable environment especially suited for families. McDonalds Promotion strategy Limited value menus, promotional games Using new menu items, low price specials, Extra Value Meals Donations, charity functions Celebrates McDonald s happy day Focuses its ad campaigns on its overall Mc Donald experience and active life style. Other strategies "Better, not just bigger To Experiment with new technology and to research new markets

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Recommendations
McDonald's tend to import much of their raw materials from different places. If it uses local sources and products, it can reduce exchange rate fluctuations that will play a significant role in the operations of the company. This will provide more employment to local people that can improve the image further. McDonald's also has to take a great deal of consideration with reference to its macro environment and microenvironment. It has to establish a good system in determining the needs of the market and use concepts of consumer behavior product personality and purchasing decisions to its advantage. Advertisement in the media with regards to local requirements can also help boost its business. McDonald's should apply a more careful consideration on their corporate social responsibilities. On the whole, this will address the need of the company to form its corporate reputation to a more positive one and a more socially responsible company. Participating, endorsing and funding charities, festivals and other activities can help increase its reputation. Although the company has provided its customers the relevant data that they need with reference to the nutritional substances of their products, they should provide information in details on the menu and on the website. This will deliver freedom in choosing whether or not consumers want to purchase meals. Obtain the relevant information from the target market in addition to the individual customers of the organization. A well drafted and comprehensive market research should be conducted so as to establish the acts that would conform to good customs, public policies, and morals of the said state. Similarly, the company should find out the shifts in areas like the consumer behavior and purchasing patterns of the market. Use the internet to their advantage. The cost-effectiveness, interactivity and real-time effects of the communications are a good way to find suppliers. It is also a good way to correspond with the respective McDonald's headquarters in every state. Another effort for McDonald's to do is to keep its stores fresh and contemporary as styles, colors, decors and technology change. The company should constantly renovate, rebuild and relocate some of its restaurants to keep up with the environmental and technological changes. The company must also look into the use of IT to enhance their inventory operations. As the operations in its inbound and outbound logistics improve, the company will expect significant savings and reduction of costs in the operations. Hire local counsels to deal with the legal conflicts in individual markets on which the company may encounter. In order to be successful, it has to consider all the important social and cultural issues. McDonald's also has to focus upon its dealing of environmental issues. To be successful, it needs to resolve the social, ethical, political, and other environmental issues discussed above, effectively. Lastly, it may focus on younger consumers and try to target their preferences. Young generation especially kids like to come to McDonalds often. By targeting them, the company can increase its customers and generate more revenue.

20 SWOT Analysis Strengths

McDonalds has built up huge brand equity. It is the No. 1 fast-food company by sales, with more than 31,000 restaurants serving burgers and fries in almost 120 countries. Sales, 2007 (11,4009 million), 5.6% sales growth Good innovation and product development. It continually innovates to retain customers in the business. The McDonalds brand offers consumers choice, reasonable value and great service Large amounts of investment have gone into supporting its franchise network, 75% of stores are franchises Loyal staff and strong management team. Weaknesses

Core product line out of line with the trend towards healthier lifestyles for adults and children. Product line heavily focused towards hot food and burgers Seasonal Quality issues across the franchise network. Opportunities

Joint ventures with retailers (e.g. supermarkets). Consolidation of retailers likely, so better locations for franchisees. Respond to social changes - by innovation within healthier lifestyle foods. Its move into hot baguettes and healthier snacks (fruit) has supported its new positioning. Use of CRM, database marketing to more accurately market to its consumer target groups. It could identify likely customers (based on modeling and profiles of shoppers) and prevent brand switching Strengthen its value proposition and offering, to encourage customers who visit coffee shops into McDonalds. The new formats, McCafe, having Wifi int ernet links should help in attracting segments. Also installing childrens play-parks and its focus on educating consumers about health, fitness. Continued focus on corporate social responsibility, reducing the impact on the environment and community linkages. International expansion into emerging markets of China and India.

21 Threats

Social changes - Government, consumer groups encouraging balanced meals, 5 a day fruit and vegetables. Focus by consumers on nutrition and healthier lifestyles. Competitive pressures on the high street as new entrants offering value and greater product ranges and healthier lifestyles products. E.g. subway, supermarkets, M&S. Recession or down turn in economy may affect the retailer sales, as household budgets tighten reducing spend and number of visitors. Pressure groups - environmental.

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Competition Analysis (within industries)

The inefficient of this strategy is that it very costly due to the extensive research and development considering that there are other local competitors already in the market offering local cuisines. The perceptions of locals for foreign companies can be detrimental in terms of culture. As witnessed, in India beef is sacred, meaning that McDonalds had to change and offer something else so not to lose customers and legal actions. In Muslin countries, they do not eat pork hence not embracing their culture would mean loss and failure to localize.

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Recommendation
Steps Taken to Globalize Indian Economy

Devaluation: To solve the balance of payment problem Indian currency were devaluated by 18 to 19%. Disinvestment: To make the LPG model smooth many of the public sectors were sold to the private sector. Allowing Foreign Direct Investment (FDI): FDI was allowed in a wide range of sectors such as Insurance (26%), defense industries (26%) etc. 4. NRI Scheme: The facilities which were available to foreign investors were also given to NRIs.

India opened up the economy in the early nineties following a major crisis that led by a foreign exchange crunch that dragged the economy close to defaulting on loans. The response was a slew of Domestic and external sector policy measures partly prompted by the immediate needs and partly by the demand of the multilateral organizations. The new policy regime radically pushed forward in favor of a more open and market oriented economy. Major measures initiated as a part of the liberalization and globalization strategy in the early nineties included scrapping of the industrial licensing regime, reduction in the number of areas reserved for the public sector, amendment of the monopolies and the restrictive trade practices act, start of the privatization program, reduction in tariff rates and change over to market determined exchange rates. Over the years there has been a steady liberalization of the current account transactions, more and more sectors opened up for foreign direct investments and portfolio investments facilitating entry of foreign investors in telecom, roads, ports, airports, insurance and other major sectors. The Indian tariff rates reduced sharply over the decade from a weighted average of 72.5% in 1991-92 to 24.6 in 1996-97.Though tariff rates went up slowly in the late nineties it touched 35.1% in 2001-02. India is committed to reduced tariff rates. Peak tariff rates are to be reduced to be reduced to the minimum with a peak rate of 20%, in another 2 years most non-tariff barriers have been dismantled by March 2002, including almost all quantitative restrictions.

24 McDonalds has given the adage of think global, act local a concrete shape in India. The companys localization strategy is clearly manifest in the critical area of management. McDonalds decided to set up two joint ventures on a [50:50] basis with two local entrepreneurs in Mumbai and Delhi. In Mumbai, Amit Jatias company, Hardcastle Restaurants Private Limited, was selected to own and manage McDonalds restaurants in the western region. In Delhi, Vikram Bakshis Connaught Plaza Restaurants Private Limited was chosen to own and manage McDonalds restaurants in the northern region. Both Vikram Bakshi and Amit Jatia are responsible for running McDonalds in India. Vikram Bakshi has extensive background in real estate development in Delhi, while Amit Jatia, a vegetarian, has a chemicals and textile business background in Mumbai. It was not their backgrounds, however, that won the confidence of the Big Macs management. Rather, it was their business plan emphasizing India-centric management strategies and their easy access to bureaucracy so critical to effective government relations building. In the beginning, McDonalds was faced with two challenges of the Indian market: (1) how to avoid hurting religious sensibilities of Indian consumers; and (2) how to avoid political confrontation with Indian government and political activists. McDonalds managers were well aware of the fact that political activists can create trouble for foreign-based fast food chains, as demonstrated in the case of politically organized agitation against KFC in Bangalore in January 1996. With two local managing directors (Bakshi and Jatia) playing critical roles, McDonalds took a series of politically correct strategies to deal with the initial challenges of the Indian market. Since Indias majorities Hindus (80% of Indias population) revere cows as sacred and 150 million of Indian Muslims do not eat pork, beef and pork have been a complete no-no from the start. Instead, McDonalds introduced a mutton-based Maharaja Mac in India, as opposed to its flagship beef-based Big Mac elsewhere. Other items such as the tantalizing McAloo Tikki Burger (breaded potato and pea pattie) were added to the menu to lure Indias middleclass. Approximately 75% of the menu available in McDonalds in India is Indianized and specifically designed to woo Indian customers McDonalds is an excellent example of franchises in the domestic fast-food industry. It operates primarily on this highly standardized basis. As indicated in the case study, McDonalds 80% of its 32,278 restaurants around the world are franchises while only 20% are company-owned. The advantages of are low political risk, low costs involved, fast and easy avenue for leveraging assets such as brand name.. It gave McDonalds the advantage to extend control of its strict business rules over the menu, cooking methods, staffing policies, design and location. Furthermore, the benefit of organizing and selecting the supply chain, providing management training and financial assistance for its franchisee. This gave it more advantage to maintaining a highly collaborative relationship with its franchisees and making franchising decisions based on whats best for its customers. The disadvantage is franchisors image may be tarnished due to franchisee not upholding standards. As a result, customers and even prospective customers may be driven away by service delivery inconsistencies where the franchisee does not respect the agreed strict business rules. Furthermore, it limits a firms ability to imp lement a coordinated strategy to facilitate entry into

25 multiple foreign markets. A critical consideration for the McDonalds management is quality control, which becomes more difficult with greater geographic dispersion. Also, costs could be high due to training development, promotional and support activities of the franchisee, geographic dispersed owner-managers inhibits global strategic coordination in detecting poor quality and inefficient operations. However, McDonalds initially sets up subsidiaries in each country, which then monitors the franchisees service de livery alleviate such concerns. The effectiveness of this strategy is the learning effect where McDonalds benefits from the franchisees valuable innovative ideas. For example, restaurants in France were faced with slow growth such the local franchisees experimented with the menu, layout and theme of McDonalds restaurants. As a result, annual sales increased from 1% to 3.4% of the same-store. Thus, McDonalds executive considered adopting similar changes in markets where same-store sales growth were sluggish including US. Returns are likely to be greater if a local competitor lacks comparable products (Hill, 2009). McDonalds revenues rose to $5.61 billion, an increase of 10% from Q1 FY2009 ahead of analyst expectations of $5.53 billion. Thus, the companys core competencies could not be easily matched or imitated by competitors in managing fast-food operations across borders. Furthermore, McDonalds have attained higher profit margin and greater profitability had it remained in the United States, according to the Q2 FY2010 Earning summary global comparable sales increased 4.8%, with Europe leading at 5.2%, Asia/Pacific, Middle East and Africa at 4.6% and finally U.S at 3.7%. The company owns more stores worldwide (about 19,700) than it does in its home country, thus indication of confidence of internalization. The ineffective of this strategy is that it increases complexity; geographic separation, cultural and national differences and variations in business practices tend to make control and communication between HQ affiliate very difficult. Others argue that the decision to centralize or decentralize the corporation directly affects marketing efforts. As McDonalds had learnt that a wide varie ty of environmental interest existed around the world, the inefficiency of centralizing many of its strategic decision at HQ level had implication hence, it had to decentralize the decision process to allow greater customization of each market among franchisees and corporate-owned restaurants. For example, in Japan which has a high density population, waste and recycling are significant concerns and in Australia, water conservation is a major issue.

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Conclusion
India gained highly from the LPG model as its GDP increased to 9.7% in 2007-2008. In respect of market capitalization, India ranks fourth in the world. But even after globalization, condition of agriculture has not improved. The share of agriculture in the GDP is only 17%. But seeing the positive effects of globalization, it can be said that very soon India will overcome these hurdles too and march strongly on its path of development. The lesson of recent experience is that a country must carefully choose a combination of policies that best enables it to take the opportunity - while avoiding the pitfalls. For over a century the United States has been the largest economy in the world but major developments have taken place in the world Economy since then, leading to the shift of focus from the US and the rich countries of Europe to the two Asian giants- India and China. Economics experts and various studies conducted across the globe envisage India and China to rule the world in the 21st century. India, which is now the fourth largest economy in terms of purchasing power parity, may overtake Japan and become third major economic power within 10 years. To conclude we can say that the modernization that we see around us in our daily life is a contribution of Globalization. Globalization has both positive and as well as negative impacts on various sectors of Indian Economy. So Globalization has taken us a long way from 1991 which has resultant in the advancement of the country.

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