The case highlights an important issue pertaining to challenges faced by multinational companies in foreign markets. Global brands predominantly encounter issues with respect to cultural, political, technological, economical, legal and environmental factors prevailing in the respective foreign markets. These macro factors are complex and vary greatly across developed and emerging market settings.
Ankur Srivastava
For instance, emerging markets might suffer more from economic, technological and political instability among other factors, compared with their developed market counterparts. This case details how multinational firms must take into cognisance these dynamic macro forces to operate profitably in an emerging market setting.
The case begins with the issue of franchise conflicts, which McDonald’s was facing with its business partner in India in its northern and eastern markets. McDonald’s has found the franchising business model as an effective strategy for business development in foreign markets. In this scenario, the franchisor gives the franchisee the rights to use its business concept, such as allowing for trademarks (brands), against an agreed upon royalty amount.
Factors leading to conflict
This arrangement requires effective management of the company’s internal controls systems. And this would include a set of rules, policies, and procedures needed to be implemented by an organisation to provide direction, enhance efficiency and promote adherence to policies. As the case highlights, financial irregularities, mismanagement of funds, conflict of interest, lack of interest and other inadequacies with respect to internal control systems led to the conflict situation between McDonald’s and its franchisee for the North and East, Connaught Plaza Restaurants Ltd (CPRL).
Global companies reach out to foreign markets to reap strategic benefits accruing from demand/supply, consumer demand and strategic appeal from consistent positioning for their offerings. For global brands, emerging markets are a source of increased profits as much of their growth will come from these markets only. For McDonald’s, franchisee internal control issues coupled with negative associations about their food quality and accompanying health hazards led to depletion of consumer trust. Salient features about a brand go to build its special identity that consumers connect with, and establishes a unique selling proposition for the brand.
Such positioning evokes a particular set of cognitive and emotional responses from consumers that are linked with their perception of and attitude to the brand.
Erosion of brand image
McDonald’s, a global fast-food player, carries strong, unique, favourable associations in the minds of consumers. But after its entry in the emerging markets, the unfavourable associations led to a deterioration of brand identity and meaning. Consumer confidence in the brand was shaken as a result of negative media reports and the closure of various McDonald’s retail outlets.
This is clearly reflected in the loss accumulated by McDonald’s over the years in terms of depleting sales. Brand image being an intangible asset for the brand, its erosion through negative associations was bound to result in the loss of market share for the QSR major in a rapidly-growing fast-food market such as India. So, McDonald’s has a massive challenge to protect its market share and brand reputation amidst this ongoing franchisee crisis.
McDonald’s has resolved its legal dispute but the road to complete revival is long. It can begin by establishing stringent internal control mechanisms so that legally sound long-term agreements can be reached with new business partners. Before entering into any long-term agreements, the company should assess the feasibility, benefits and expected challenges from the alliance. It should also work on laying down detailed guidelines that help shape the future operations of the franchisee.
The company must decide on the level of intervention itwants to have and under what circumstances the alliance can break. It can also work on value creation activities through the alliance which can benefit the local partners in terms of training, incentives and skill acquisition. It should also plan to resolve the possible conflicts arising on various major and minor strategic issues. This can be a way forward for a multinational to successfully partner with local businesses.
Road to revitalisation
In order to revitalise its brand after the crisis, McDonald’s must restore consumer trust towards the brand. This can be done by conveying the corporate communication in the mainstream and social media about the strategies the company is undertaking to restore normalcy in its daily operations. Being authentic in its brand repositioning might play a crucial role. Firms can accept the fiasco in public and try convincing consumers on the new initiatives the company has undertaken to preserve its authentic brand image. In such instances, the company needs to look deeper at the stakeholder level to rebuild its reputation.
At the product and service level it can offer its customers new, fresh, healthier, affordable, convenient options such as wide product assortments, better service systems or payment alternatives to regain the brand’s high performance levels. At the community level, McDonald’s needs to design strategies to harness positive emotions, such as emphasising the nostalgic appeal of the brand or through celebrity testimonial campaigns.
Managing reputation though public relations will becrucial in the initial stages to rebuild consumer trust. On the supply chain level, partners need to be reassured about partnering with McDonald’s and this can be achieved by enhancing the collaboration between the partners through a mechanism of effective policy implementation.
To conclude, it’s a long road ahead for McDonald’s to regaining consumer trust, but through proper internal control mechanisms, by making innovative changes in product offerings as per consumer tastes and preferences, along with reinforcing the authentic brand positioning of McDonald’s, the objective to recover lost market share can be achieved.
(The writer is Assistant Professor, Department of Marketing & Strategy, ICFAI Business School, Hyderabad.)