Introduction (McDonald’s Corporation, 2017). Significant cash flow and popularity

Introduction
to Globalization

1.1 What
is Globalization?

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Globalisation has been described by Steger (2017) as “capturing the increasingly interconnected nature
of social life on our planet mediated by the ICT revolution and the global
integration of markets”. Globalization describes a variety of economic,
political, cultural and environmental processes that are rapidly altering the
world itself.

1.2 What major challenges are presented by
Globalization to the Hospitality Industry?

The major challenges for the
hospitality industry or service industry as a whole, presented by Globalization
can be presented by Porter’s Five Forces
Theory (1980) which enables companies to identify the benefits and risks to
their business when moving into a new market. The
attractiveness of a new market for a business can be analyzed using the Porter Diamond Model (1990),
which can be closely considered when an industry is in the midst of globalization. Taking these frameworks into account is important for the
hospitality industry as Porter (1997)
said: “Buyer Influence determines the
profit that can be extracted from a product while meeting price and quality
demands.”

Figure 1-
Five Forces Framework, Michael Porter (1979)

Theoretically speaking, the main challenge for the hospitality
industry in respects of globalization would be the increased intenseness of the
competition in the market. For larger retailers, this would mean an increased
demand for their products and the popularity of the brand which encourages
further expansion. However, for smaller scale companies, globalization could
potentially put them out of business by their countries of origin offering
market shares to big businesses; this creates a largely competitive
environment, in which they may not have the capital- human, resources or space
to compete.

In addition to this, there are a
few other challenges too faced by this industry, in the form of environmental
damage, inequality, inflation, unemployment, dominant global brands, and standardization.

 

 

 

Globalization and McDonald’s

           2.1
McDonald’s as a Company

Figure 3:
A Table Showing McDonald’s as the Largest Restaurant Chain in the World.
Source: Bloomberg as of October 12, 2017 and latest company reports.

As reported by McDonald’s
(2018), it is stated that “McDonald’s is the world’s leading global food
retailer with over 36,000 locations in over 100 countries.” McDonald’s capital
from operations in 2016 reportedly reached 6,060 million US dollars, of which
982 million US dollars went into investment activities within the company (McDonald’s Corporation, 2017). Significant
cash flow and popularity of the brand allows for solid growth plans at present
and moving forward.

 

           2.2
Major Global Events

                2.21 The Effects of Brexit

The UK is
set to see a loss of more than 750 trade agreements, spanning across a
multitude of areas such as trade, agriculture, transport and customs (Financial Times, 2017). With only 52% of
Britons opting to leave the EU, globalization has a big role to play in this,
especially in countries hit by economic downfall, leading to an increase in
unemployment. The natural reaction from the people, especially
those who are affected by job loss or unemployment, is to vouch for
protectionist policies, including restrictions on the movement of people for
employment from one country to another (Indian
Currents, 2016). It has however been suggested that other members of the EU
have called for referendums of their own to follow suit (Indian Currents, 2016) which may lead to further disruptions in the
global environment.

 

                2.22 The Effects of the Chinese Economic Downfall

In addition
to this, it has been reported by US News (2017) that China is set for an
economic downfall in 2018. China has been downgraded by credit rating agencies
for its slow economic growth and rapidly rising debt. Reforms are set to be put
in place in March 2018, which if done late, experts have warned that they could
trigger financial instability. This means that for the consumer, wage
stagnation, inflation and customer confidence being at an all-time low,
McDonald’s as a business may suffer in this market. Despite the impending
reformation, it seems that McDonald’s is making plans to expand its restaurant
base in the country by more than 2000 restaurants in their plan “Vision 2022”.
McDonald’s have reported to have said
they want to take their Chinese market from 2,500 stores to 4,500 stores by
2022 as reported by the Financial Times
(2017).

 

                The Effects of USA Leadership

Furthermore,
it has also been reported by US News
(2017) that the USA and China are in the midst of a battle over trade. With
Donald Trump now in charge of the country since early 2017, has been seen to
dismantle his partnerships with other countries and his “protectionist” agenda
on trade may well impact one of the USA’s biggest alliances, China. During his confirmation hearing, President Trump’s Secretary
of Commerce, Wilbur Ross, was quite striking in his focus on enforcement,
saying that those countries that do not “play by the rules” should be
“punished and severely”. He identified tariffs as the mode
of punishment (Lohman, W. 2017). Experts suggest “multi-national corporations should
work on their risk strategies in order to be ready to deal with any disruptions
in the supply chain, or reorient their products to other markets” (US News, 2017). This would make for an
uncertain time for the USA market of McDonald’s, seeing not only a downfall in their revenues from restaurants by 3% in the
last year (McDonald’s Corporate,
2016) but also further disruption to supply chains could reduce the profitability of the restaurant chains. 

 

           2.3
Ethical Implications of Globalisation

                2.31 Employment Implications

When moving
into a foreign market, it must be no assumption that employment laws are
corresponding with those of your home market. Application of similar or the
same levels of standard of working may be unnecessary in your newly selected
country of trade; however, it is
important that for a company, they always provide a living wage, good working
conditions, protecting the safety of their workers and provide a decent amount
of hours a week. It is time to place full
employment centre stage once again as the
primary objective of macroeconomic policies, in both industrialized countries
and emerging economies. For what is good for employment is good for economic
growth (Nayyar, D. 2015).

 

                2.32 Human Rights Implications

Human rights
may cause implications for a company is the country of entry does not respect
basic human rights. This can become an issue for the business that is entering
the country if they choose to support the present state of abusive dynasty, as this will have a negative
effect on the Business’ Brand and Corporate Social Responsibility as this would
be fundamentally unethical. However, if a Business operating in a market that
does not respect basic human rights does observe rights of employees and
citizens and actively neutralizes the
abuse of these, the Business would be seen to be actively improving local
conditions and have a positive impact on the environment both internally and
externally. As Michael, K. (2017) describes, “The concept of
rights, both positive and negative, is the marker of citizenship, our relation
to others.”

 

                2.33 Pollution Implications

Pollution and Environmental legislation are in place in both the USA and
the UK, where McDonald’s predominantly operates. In order for the business to
be seen as ethical, it must ensure that if there is no legislation in place, it
must operate at least to the standard of its country of origin in terms of
environmental practices. The Kyoto Protocol is an international treaty
established in December 1997. The aim of the protocol is to stabilize
human-induced climate change, which disproportionately affects poor areas of
Africa, Asia, and Latin America, compromising food security and sustainable development
(Wilson, M. 2015).

Figure 5:
Overview Map of States That Agreed To Reduce their Green House Gass (GHG)
Emissions Limitations in the First Kyoto Protocol Period (2008-2012). Source: https://en.wikipedia.org/wiki/Kyoto_Protocol
(Key can be found in the Appendices)

 

 

2.4 Digital Implications of Globalisation

Figure 6:
Kondratieff Waves (Schumpeter, 1939) Source: http://www.economist.com/node/186628

As Friedman, a New York Times Columnist said at a conference in 2000,
“Globalisation is not a choice.
Basically, 80% of it is driven by technology.” Technology that relates to
production, distribution and
communication has expanded since the 1990s which has fuelled globalization and in turn, made it easier for such technologies to be available in order
to support the global economy. The effect of innovation and technology since
the industrial revolution on the economic climate can be seen in Schumpeter
(1939) Diagram of “Kondratieff Waves”
which describes each technological advance and each of the three stages,
expansions, stagnation and recession that comes with it before another cycle
takes place.

According to Figure 5,
we currently sit in the fifth wave, “The Information Age”. This has seen a
multitude of advancements which has allowed globalization
to charge forwards. The escalation of Information Technology has made for
cheaper production and the wider spread use of the internet has allowed for
more cost-effective ways to advertise and
do business. The effect of Technology on a globalized
company such as McDonald’s can only be seen as positive due to technology
making internal processes, external operations and consumer interaction
effortless.

 

 

 

 

 

Conclusions

According to Steger
(2017), Globalization can be described as “capturing the increasingly
interconnected nature of social life on our planet mediated by the ICT
revolution and the global integration of markets”.  McDonald’s as a company will benefit
massively from further globalization and
international expansion. Ethical and Technological implications presented by
globalization can prove both beneficial and also hazardous to the companies
prevalence in new markets.

In relation to the Porter Diamond Model (Porter, 1990) McDonald’s Local Factor
Conditions and Local Demand Conditions could be seen as a strength for the
company, with a strong brand image and being a business of larger scale, this
can help with securing factor conditions in new environments. McDonald’s can
help sustain and offer partnership to “Local Related and Supporting Industries”
in order to support the economy. In terms of “Strategy, Structure and Rivalry”, McDonald’s must tailor this to
each new location they do business in, in order to be successful. According to Porter, domestic rivalry and the continuous search for
competitive advantage within a nation can help organizations achieve advantages
on an international scale. McDonald’s must also use the Five Forces Framework
(Porter, M. 1979) when assessing the attractiveness of a new market, in order
to assess the benefits and risks and in essence establish the potential profit
to be made from a new location.

Recommendations

It is recommended:

·        
That McDonald’s continue to operate globally,
moving into markets in which they would be able to benefit the company itself
and also the community that it chooses to do business in.

·        
That McDonald’s Corporation works to improves
its Corporate Social Responsibility in its existing markets and create plans
for new markets in order to avoid any resistance from the population it chooses to expand within.

·        
That McDonald’s correctly identify locations to
expand to by using frameworks in order to establish sustained competitive advantage
in their industry in their chosen market.

·        
That McDonald’s have a risk strategy in place to
counter-act any major global issues, to avoid disruption of our service from
trade agreements, transportation or economic downfall.

·        
That McDonald’s continue to innovate their technology strategy in order to sustain
competitive advantage and lead the industry in this area.

·        
That McDonald’s ensure they are abiding by
ethical practices, by following human rights laws, employment laws and
environmental laws to a similar standard of their country of origin (USA).

·        
That McDonald’s champion a sustainable economic
climate to countries they do business in by investing in its local community,
expanding in these areas and creating jobs.