McDonald`s in Kenya

McDonald`sin Kenya

Companybackground

McDonaldCompany is one of the leading fast food franchises in the world. Thecompany started in 1940 in America, but currently it has operationsin about 119 countries. McDonald began as a barbecue restaurant andafter short period it became a hamburger restaurant. Two brotherswho later sold the business to Ray Kroc started the franchise. RayKroc is responsible for turning McDonald into an international brandthat earns its income from rent, fees, royalties, and fees. MacDonaldsells chicken, hamburgers, breakfast, French fries, milkshakes,cheeseburgers, soft drinks, wraps, desserts, smoothies, fish, fruit,and salads. Most of foods sold in this restaurant are in response tothe market demand and are regularly based on preferences and taste ofthe nation of service. The proposal is found in the food industrythat is always increasing and changing (Gilbert 78).

McDonaldwould like to enter into Kenyan market, as the way of penetratingEast African market. The franchise has no main operations in the EastAfrica region, which has experienced exponential increase of themiddle class over last ten years. Kenyan market is the primary targetmarket for McDonald’s franchise. The country has limited fast foodrestaurants, as well as there is no central franchises service inKenya. Recently, KFC entered Kenyan market through its own SouthAfrican franchise. McDonald has an opportunity to enter Kenyan marketvia its own South African of the Egyptian franchises. McDonaldrestaurant can sell all the products in Kenyan market because themarket has no religious or cultural restrictions on food (Gilbert79).

Countrybackground

Kenyanmarket is the best way to penetrate East African region because itproduces foods that can be used to prepare the majority of foods soldat McDonald restaurant. The country has a young population, and it isexperiencing swift urbanization, therefore, McDonald will have agreat advantage in case it managed to penetrate the market currently.The franchise would grow with growing urban population. Kenya hasincreased consumer expenditure as well as friendly investmentpolicies, which would favor McDonald restaurant. Currently, fast foodfranchises are performing well because Kenyans have embrace cultureof eating out their home. The country is rank first according toeconomic performance in the East African region (Malinda 83).

McDonaldmay face particular challenges that include lack of stable foodproduct supply. Kenya depends heavily on the rain-fed agriculturetherefore this means that the company may sometimes experienceshortage of the food substances. Moreover, urban population is onlylocated in few areas like Mombasa, Nairobi, Kisumu, and Nakuru. Thislimits Kenyan market besides the already existing completion. Kenyanmarket is also limited because middle class people mostly eats out insmall, fast food restaurants (Thomas and Jay 92).

Recently,Kenya established forty-seven counties with county headquarters. Theoffice is expected to become big towns and, therefore, holdopportunities for fast food outlets like McDonald. Additionally,Kenya has one of fastest growing economy in East Africa region,together with a young population. This means that the middle classwith more spending abilities would comprise a great percentage of thepopulation therefore, there is a significant demand for McDonaldrestaurant. Fast food sector lacks committed players with standardsthat are world class to serve the ever-increasing demand. The outletsavailable do not have much competition and, therefore, McDonald thathas an established name stands an excellent opportunity to enter anyunclaimed market. Therefore, in case McDonald enters Kenyan market,the company will have a unique opportunity of growing with thenation, and become the launching base for East African region(Malinda 85).

Theentry of McDonald restaurant in Kenya would be an excellent ideabecause Kenya economy is growing, and the franchise would have theopportunity to grow with it. Moreover, the middle class populationthat is target market for the company would be perfect for McDonaldrestaurant. The country has significant young group, who are greatspenders on the fast food restaurants. Availability of the readymarket and lack of serious company in fast food sector indicate thatthere is a ready market for McDonald Company (Thomas and Jay 94).

Entrymode

Themode of entry in the international market is a channel that anyorganization uses to get entry to the new international market. Acompany should consider several main alternatives, and recognize thatthese alternatives are diverse and many. Some of modes of entry thata company may use to enter international markets are Exporting,Internet, Licensing, International distributors, Joint ventures,International agencies, International sales subsidiaries, andOverseas manufacture. The best modes of entry that McDonald shoulduse to enter Kenyan market are licensing, international distributors,or foreign agents. Kenyans are becoming more globally aware, qualityconscious, and brand aware. This does not mean that people have moremoney, but people are spending money on social and leisureactivities. Therefore, this has driven entry of more internationalbrands in Kenyan fast food market. KFC has entered the market andother global brands are expected to follow the trend. McDonald’s isexamining the market and challenges for the company’s supply chainare somewhat broader because they provide more products. TheMcDonald’s mode of market entry is very different compare with KFCmode of entry (Luo 102).

Licensing

Licensingincludes contract manufacturing, turnkey contracts, and franchising.Licensing an organization means charges certain fee and royalty foruse of the company technology, expertise, or brand. Franchisinginvolves the company (franchiser) providing concepts, branding,expertise, and indeed most facets that are required to operate in aninternational market to franchisee. In most cases, franchise tends tocontrol management. Some examples include coffee republic, Domino’spizza, and McDonald’s restaurants. The turnkey contracts arefundamental strategies to construct large plants. They regularlyinclude training as well as development of central employees whereknowledge is sparse, for instance, Toyota’s car plant in theAdapazari Turkey (Mattern 112).

Internationalagents or international distributors

Inmost cases, agents are an early step into global marketing. Agentsare groups or individuals that companies contract for business, andmarket on behalf of the company in an individual country. They hardlytake ownership of the products, and commonly take the commission forgoods sold. The agents usually represent many organizations. Agentsoperate at low cost and low-control option. In case a company intendsto enter the international market, it should ensure that the contractpermit it to reclaim direct product control. In the case McDonald’srestaurant chooses to use agents, it should set targets because therestaurant never knows level of commitment of the contracted agent.The contracted agent might also represent McDonald’s competitors sothe company should be aware of conflicts of interest. Agents tend tobe costly to train, retain, and recruit. Distributors are comparableto agents, but the only main different is that the distributors takethe ownership of goods. Therefore, distributors are motivated tomarket products as well as make a profit from them (Luo 104).

Marketingand R&ampD strategies

Asthe United States fast food market is saturated, McDonald has startedto open foreign franchises. Currently, 90 percent of the company newrestaurant openings are global. The company plans for further growthto increase its penetration especially in the developing nations.However, the company had to adjust the business model. In UnitedStates, tight relationships with the suppliers as well asstandardization have help to drive down the costs. The internationalstores prepare the American staples, although they have theflexibility to provide foods suitable for local tastes. The biggestproblem for McDonald has been to duplicate its United States supplychain in the foreign countries. McDonald maintains carefulspecifications for raw materials, although local suppliers are notwilling to make investments needed to meet them. Kenya is a potentialmarket for several global franchises therefore, McDonald should aimat providing quality products like chicken because chicken is popularluxury in Kenya (Malinda 88).

Thecompany approach in Russia involved vertical integration throughentire supply chain, managing vegetable and dairy farms as well asbuilding the $40 million the food-processing plant. Progressively,McDonald restaurant is finding that the foreign franchisees are thesource of treasure new ideas. McDonald uses distinctive competenciesthat it develops in home country like input standardization and costcutting, to achieve an advantage in the foreign markets, where thecompeting restaurants lack those skills. The company model is verysuccessful and firmly ingrained in company’s operations that incase a piece of the puzzle is lost as in the case of Russia, McDonaldtakes on a heroic task of giving that piece instead of changing themodel (Mattern 115).

Businessopportunities in Kenyan market

Kenyanmarket presents several opportunities regionally and locally in fivemain sectors, which include information &amp communicationstechnology, infrastructure/construction, energy, medical equipment,and agribusiness. Demand for telephone receivers, as well as cellularphone, is projected to continue expanding at high rate followingremoval of duties for the product categories. Kenya’s mobiletelephony sector growth since 1998 has been remarkable (from over10,000 subscribers to approximately 26.2 million in year 2011), andis expected to continue providing demand for the telecommunicationtechnologies including the 3G modems (Malinda 91).

Althoughthe capacity of installed power generation is relatively small by thefirst-world standards, Kenya leads in the electricity generatorwithin Eastern African region. However, in Kenya access toelectricity is just about 23 percent, while the electricitypenetration in the rural Kenya is about 12 percent. State-owned powerdistributor, Kenya power and national power generator KenGen aredeveloping strategies to attract fund for expansion from privatecapital. In Kenya, the main markets for the material handlingequipment are in farming, mining, as well as manufacturing sectors.The available opportunities include planned development of Lamu portin coast province as well as expansion and construction of processingplants. In housing and road construction, importance opportunitiesare available for United States exporters in supply of used and newconstruction equipment (Malinda 92).

Challenges

Althoughcost of educated and skilled labor in Kenya is higher according tostandards of developing world, it is relatively plentiful incomparison with other East Africa countries. Nevertheless, a hugeportion of the young population is relatively unskilled, as well assubsists in the employment environment, which provides fewopportunities. Although Kenya’s physical infrastructure is superiorin most cases as compared to neighboring countries, the countryremains undeveloped and is the main obstacle toward economicdevelopment. In the next decade, investment in transportationinfrastructure transparency and reliability, reforms that enhancegovernment efficiency business regulation better competition aswell as judicial system reforms will determine whether Kenya loses orgains ground compared to other East Africa countries. Insecurity andcorruption continue to pose great challenges to business. Publiccontracting law in Kenya is not effective tool that can limitgovernment officials from giving contracts to people who give bribes.Even though there are corruption cases among the private companies,it is difficult to evaluate the reliability of the potential businesspartners (Luo 107).

Workcited

Gilbert,Sara. TheStory of McDonald’s.Mankato, MN: Creative Education, 2009. Print.

Luo,Yadong. Entryand Cooperative Strategies in International Business Expansion.Westport, Conn: Quorum, 1999. Print.

Malinda,Catherine. “Country:Kenya- Franchising” United States Department of Commerce.Nairobi: The U.S. Commercial Service in Kenya May 2013. Web.

Mattern,Joanne. RayKroc: McDonald’s Restaurants Builder.Edina, Minn: ABDO Pub, 2011. Print.

Thomas,Derdak and Jay, P, Pederson, ed. &quotMcDonald`s.&quotInternational directory of company histories 67 (3rd ed.).London: St. James Press, 2004. Print.