Sample Business Studies Research Paper on Individual Case Study: McDonald’s in China

The current globalized economies has led to workplace diversity; the workforce within organizations has people drawn from different backgrounds, cultures, religions, ages, genders, and sexual orientations among other factors. Workplace diversity has become the norm in many corporations around the world. Multinational corporations operating in host countries have to deal with diversity within the workplace, given the cost, legal consequences and the logic against importing all levels of employees from the mother country to the host country. Having a diverse workforce presents advantages as well as challenges to companies. In operating a business, one of the most important aspects is the corporate image/identity. Corporate image/identity is especially important in the current state of internationalization and globalization, where maintaining a corporate identity is not only important, but also difficult (Bouchet 1). Today, more than ever, companies must curve a corporate identity given the possibility of a competitor or a non-competitor to offset the company’s position. Moreover, without a strong corporate identity, occurrences in one of the competitors can easily affect the performance of the others in the same industry, given the interconnectedness of the world. Occurrences in the parent company for multinational corporations can easily have spiraling effects on the subsidiaries in other countries (Bouchet 1). However, even with the importance of corporate identity, current organizational makeups pose challenges to corporate identity. The diversity and culture of people working in an organization pose serious challenges to corporate identity. This is especially when there is inadequate management of the two (diversity and culture). In looking at the challenges presented by diversity and culture to corporate identity, this paper will focus on McDonald’s operations in China. The paper will further use Hofstede’s cultural dimensions in the analysis of the challenges to its corporate identity experienced by McDonald’s in China. The paper will then assess McDonald’s attempts in using cultural diversity in promoting and improving its corporate identity in China. Finally, the paper will conclude with suggestions on how McDonald’s can benefit from culture and diversity in the future.

McDonald’s History

McDonald’s is rightly the largest fast food chain in the world with more than 31,000 restaurants located around the world (Schlosser 17).  Of the restaurants operated worldwide, more than 13,000 are in America, even as the corporation has a restaurant in all the continents across 120 countries (Schlosser 17). The bulk of the restaurants oversea are in the Asia/Pacific region, Middle East and Africa. Japan and China have the largest number of the restaurants, Japan having 3755 restaurants while China has 1012 operational restaurants (Schlosser 17).  

McDonald’s operations began in the 50s with Dick and Mac Donald introducing a new style of eating. Ray Kroc, a milkshake machine salesman, however, bought the business, transforming it into its current reputation of the world’s largest food chain retailer (Schlosser 17). According to Schlosser, Kroc changed the business into one that took great consideration of conformity and uniformity. Specifically, McDonald developed the mass production ethic, developing a uniform production method for some of the foods it served. Among the new methods included frozen beef patties rather than fresh ground beef, and genetically modified potatoes to give the food chain’s fries a uniform taste.

Over the years, the company has been able to branch out to other countries, making it the largest food chain in the world. McDonald’s entry into world markets has mainly been through franchising. Franchising is a market entry method used by restaurant chains wherein the franchiser offers a complete brand concept and operation, while the franchisee invests in the business concept, paying a specific fee to the franchiser (Kotler 392). Many other restaurant chains such as KFC and Starbucks have used this method for market entry. Franchising works in that McDonald’s offers its franchisees technical support in production and management of the restaurant that are consistent with the operations of the company’s own operations.

McDonalds has been keen on its expansion overseas. So much was the company keen on its expansion that in the early 2000, it opened five new restaurants a day, with the majority of the restaurants being overseas (Schlosser 17). The expansion spree saw the company growing from 30,187 restaurants worldwide in 2003 to 31,967 in 2008. Perhaps one of the most interesting features of McDonald’s expansion to the rest of the world is its taking up of local features. Thus, while the company may have pioneered fast food in the world, it had to change its strategy given the differences in culture and norms of different countries. For this reason, McDonald’s has a different image and strategy for each country that it has its operations. The differences herein include locally tailored products, sitting arrangements and service, which correspond to local cultural values, tastes and preferences.

The difference in service and image presented to customers of the restaurant is largely dependent on the American sentiment the people of the served region have. In Europe, where there is a positive American outlook in countries such as Germany, McDonald’s has largely similar services to those back home in the US. The company uses similar services as a way of selling the American way of life (Schlosser 19).  Most of the European countries have similar or slightly different values from American values. The similarity therefore affords McDonald’s the confidence to establish restaurants that are largely similar to those it operates in America. However, the company’s operations are also in countries with strong cultural differences, especially those in Asia such as China and Pakistan. Even more is that some of these countries do not have positive American sentiments. Such instances call for McDonald’s to embody a completely different image, especially one that does not remind the customers of the restaurant’s roots. McDonald’s does this by adjusting to local conditions including the incorporation of local cuisines, values and norms into customer service delivery (Turner 50). Adjustments have also included religious beliefs and regulations to better accommodate the cultures, regions and norms of the foreign countries.

Challenges on Corporate Identity that Diversity and Culture Present to the Company

China is one of the largest markets McDonald’s operates in outside the US. The difference in culture and diversity of the workforce, however, presents challenges to the company in China. The challenges have had devastating effects on the company’s bottom line, with dropping sales. One of Chinese revered culture is that of food safety. However, in 2015, an undercover television investigation made damning accusations against McDonald’s for using a supplier that relabeled expired meat (Financial Times n.p.). The scandal affected sales of the chain, leading to a 4.9 percent drop in sales of the chain. The decrease in sales is a result of customers not having been convinced of the chain’s control over its supply chain issues (Financial Times n.p).

Like the rest of the world, Chinese consumers have adapted a culture of healthy eating habits. No longer are the consumers curious about the fast food menu and service. The customers are becoming more aware and careful of what they eat, focusing only on healthy meals (Financial Times n.p). The consumers are therefore looking for better alternatives that they see as healthy and safer, especially after the meat relabeling scandal that hit McDonald’s. With many research reports painting fast food meals as unhealthy and recipe for lifestyle diseases, the culture of weight watching is fast catching on across the world and China is no exception. This has become a major challenge for McDonald’s especially as their sales go down as well as their corporate identity.

Diversity as a challenge to McDonald’s is best visible on the consumers. The diverse nature of Chinese consumers, who have different dialects, comes together in forming a challenge to the company’s corporate identity. As an American company operating in the US, McDonald’s carries the American flag in China. Social Identity Theory, however, presents the challenge McDonald’s faces with the Chinese consumers who then form a positive social identity, presenting affiliation through favoritism of a member of their society. The Financial Times  reported that while McDonald’s was reporting slow sales in its restaurants in China, Dicos, a Taiwanese fast food chain was that has cheaper menus was expanding. According to the Financial Times, while McDonald’s had 2,000 restaurants in mainland China, Dicos already had 2,200 stores, and planned on expanding the number to 3,000. The attack on McDonald’s corporate identity in this case, is that it is not only expensive, but also foreign-owned, and therefore the need for Chinese consumers to promote “their” own.

In the early years of its expansion into China, McDonald’s insisted on its American values, largely selling what it did in the US. Apart from the language in advertisement, the bottom line of its approach in the Chinese market remained largely American. Diversity as a challenge, therefore, manifests itself for McDonald’s in its communication to the masses in its advertisements. Such advertisements paint the picture of disrespect given that it does not take some aspects of Chinese communication into consideration such as the difference in communication approach and style of communication in aspects such as tone as tone, pitch, accent, expressions, and gestures. According to Zhao, the absence of consideration for the tone, accent, gestures, and expression of the different Chinese dialects in its advertisements is a challenge to McDonald’s corporate identity as it gives the impression of a company that is inconsiderate of the values of the Chinese people.

Challenges Analysis

Hofstede’s work on cultural dimensions has been instrumental in explaining actions of individuals or groups of individuals in relation to their reaction on a particularly issue. China, like most Asian countries, is a collectivist society, which frowns upon individualism. For McDonald’s, which China presented a huge market for its business, the company did not consider the collectivist nature of the society, and perhaps the more reason the relabeling scandal hit the company’s sales. As a closely-knit society that relies on connections rather than individual effort, the meat scandal dented McDonald’s reputation due to not only the value that the Chinese put on their food, but also because the scandal was widely spread by word of mouth from one individual to another. The dip in sales is also explainable through the cultural perspective. According to Ghemawat, “cultural attributes create distance by influencing the choices that consumers make between substitute products because of their preferences for specific features” (4).  The scandal, therefore, offered McDonald’s customers a chance to look for substitutes for the products offered, which they found in not only another American fast food chain (KFC) but also in a homegrown chain (Dicos), which perhaps offered better culturally-appropriate meals.

Hofstede’s fourth dimension in his research on dimensions of national culture is uncertainty avoidance. The dimension refers to the extent to which members of the said society feel uncomfortable with uncertainty and ambiguity, and therefore, prepare measures against the uncertainty. At the core of this dimension is a society’s reaction to the idea of the uncertainty of the future: whether to make attempts on controlling it or letting it happen. At 30, Chinese have a low uncertainty avoidance rate and are therefore comfortable with the future. It is for this reason that most will take precautions, choosing healthy meals instead of the unhealthy fast foods served at McDonald’s. The fact that research has pointed to the unhealthy nature of fast foods and their effect on the health of the consumers explains the reaction of the Chinese when the TV crew reported the scandal. Most would therefore go at any lengths to ensure that they avoid the fast foods for healthier meals in order to live longer. Moreover, with such reports, most see McDonald’s as serving them unhealthy meals with bad consequences on their lives and their future health.

In its operation, McDonald’s faces competition from not only its American rival, KFC, but also a Taiwanese company Dicos. The rivalry has seen Dicos expand rapidly with more restaurants than McDonalds, in addition to a forecast of opening more (Financial Times n.p.). According to Hofstede’s national cultural dimension, China is a highly collective society, scoring 20 in the individualism versus collectivism index. This means that most people in the Chinese society act in the group/collective interest rather than individual interest. Acting on collective interest therefore better explains Dicos positive forecast at a time when McDonald’s is struggling. By focusing on Dicos, the Chinese see Dicos as “their own” while McDonald’s and KFC as foreign companies out only to make a profit. Moreover, it is rightly presumptuous to see the Chinese business culture, which relies on personal connections at work. Known as guanxi, this culture easily creates barriers and paints a negative corporate image of western companies (McDonald’s included) while applauding homegrown companies (Ghemawat 6). Even more is that apart from focusing on relationships rather than transactions, the Chinese culture of collectivism has “home-biased” consumers. Ghemawat notes that “market research indicates much less preference for foreign brands over domestic ones” (6). The preference for homegrown brands essentially influences China’s interaction with the rest of the world. Collectivism, therefore, plays a major role  in the Chinese consumers’ outlook of McDonald’s, seeing the company as a foreigner, therefore making a preference for Dicos, which regardless of being Taiwanese-owned, is much a homegrown company than McDonald’s, which is entirely foreign-owned.

The first dimension in Hofstede’s analysis of national cultural dimensions is power distance. The exploration of this dimension indicates that it refers to the extent to which the less powerful members of the society accept and expect the unequal distribution of power in the society. Specifically, this dimension looks at how the society deals with inequalities among its people. China’s score for power distance is 80, indicating that people are comfortable with inequalities within the society. Largely, the Chinese accept authority as it is and the values espoused within authority figures. In its communication of its advertisements, McDonald’s did not consider this power distance relationship and in so doing missed one of the most important aspects of Chinese culture. Therefore, while America has a low score in power distance relationship, allowing people to speak their mind with little consideration of the consequences in the tone, gesture and expressions among other aspects of choosing not to consider these aspects in  its communication, McDonald’s was already making a grave mistake in relation to the Chinese power distance relationship (Ghemawat 6). Gore point to the fact that the lack of the knowledge of cultural barriers and ideological issues within a specific society as detrimental to the process of communication. It does not matter that McDonald’s use the Chinese language in its advertisements, the lack of knowledge on some fine details of the culture and aspects of communication render the communication useless (Gore 63).

McDonald’s Response to Cultural Diversity and Improvement of Corporate Identity

            Realizing it mistake, McDonald’s has taken steps in its cultural understanding of the Chinese way of living and put a lot of consideration into its communication and cultural aspects of its host country. Moving from its all-American menu, the company has begun featuring some aspects of Chinese culture into its menu. One way has been through the introduction of chicken burger with thigh meat instead of breast meat. This change came on the realization of the Chinese preference for thigh meat over breast meat. Using specific cultural aspects in its menu is one of the features McDonald’s has rolled out in its global operations; China included (Schumpeter n.p.). Apart from the thigh chicken burgers, McDonald’s has introduced other menus that celebrate Chinese culture including the Chinese New Year Meal composed of Grilled Chicken Burger, curly fries and a horoscope of the 12 animals present in Chinese astrology. Other aspects of the Chinese culture have included the addition of fried eggs and Chinese pancakes into the breakfast menu, as well as launching hot drinks with honey and ginger accepted in China as keeping cold away. The changes made by McDonald’s are largely temporary and aimed at the company’s survival in the Chinese market, and are therefore on sale only for limited periods (Li 19).

            At its entry into the Chinese market, McDonald’s targeted families with children. Later, however, it changed its focus to youths between 4 and 30 years. In its communication to this group, McDonald’s used the term “young, fashionable and lively” with the hope of providing a light and happy dining experience to the youth. The company has also used popular celebrities such as sportspersons and pop music singers as their spokespersons to increase its popularity among the youth.

            McDonald’s has also adjusted to the Chinese eating habits and made their restaurants hospitable to the Chinese culture. While fast food restaurants in the west perform the function of providing fast meals on the go, restaurants in China have a different purpose. For the Chinese, restaurants are places to meet friends one has not seen in a while instead of house invitations (Chen 21). For this reason, McDonald’s has located their restaurants in downtown areas with high population and along main streets. The restaurants additionally have playgrounds and sliding boards allowing parents to stay longer as children play.

            McDonald’s has also taken consideration of language and translation of its products. The difference in culture and language of the two means that McDonalds must consider what the translations will mean and the message such translations will send to the customers. Moreover, the Chinese show more interest in names that they can easily remember, especially when they have funny pronunciation or encouraging meaning (Li 21). In the translation of its menus from English to Chinese, McDonald’s has taken the path of having less appealing translations, but easy to understand. The names of their products in their Chinese translations have demonstrated the main ingredients and the method of cooking. Its take out number, however, drew a lot of attention in its introduction given the number’s translation in Chinese. With the number being 4008-517-517:517 in Chinese has the same pronunciation with the phrase “I want to eat.” The changes, however, did not affect McDonald’s slogan, which the company retained in their Chinese translation to remain “I’m lov’in it.” So far, these changes in the company’s take on cultural diversity have helped it remain in business in China despite the challenges in cultural differences that it (McDonald’s) continues to face.

Conclusion and Recommendations

            Diversity and culture play an important role in the way an organization conducts its business. Venturing into a foreign market requires organizations to consider diversity and cultural factors as determinants of the organization’s success in the new market. For McDonald’s China is one of its largest worldwide markets. However, the fast food chain has met challenges relating to diversity and culture. McDonald’s can benefit from diversity and culture in a number of ways. Placing value on diversity in the operations of the company can go a long way in improving the organization’s operations. Embracing diversity means that employees are comfortable with one another. It also gives the impression of a caring employer, which lowers employees’ turnover. Having a diverse workforce and accepting the diversity of each individual also drives innovation in the organization. Replicating the market with employees in the organization helps create products that cater to the customers’ preferences, which then ensures that the organization has high levels of customer satisfaction. 

Works Cited

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Financial Times. “McDonald’s and its Challenges Worldwide: A Market-by-market Look.” Financial Times, 2015

Ghemawat, Pankaj. “Distance Still Matters: The Hard Reality of Global Expansions.” Harvard Business Review, 2001

Gore, Vitthal. “The Importance of Cross-Cultural Communication.” The IUP Journal of Soft Skills, vol. VII, no. 1(2013), pp. 59-65

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