Wednesday, May 3, 2017

Inherent Vice - Lessons from the Food and Beverage Industry

In their work, Strategies That Fit Emerging Markets, authors Tarun Khanna, Krishna Palepu and Jayant Sinha speak of fast-growing/emerging markets being poor ground for profit making. They suggest that companies from developed markets need to be prepared for institutional voids and not just rely on composite indices before they set foot in emerging territory. Despite the very cynical nature of the article, there seem to be a few companies/brands that have mastered the art of being successful in global markets. Coca Cola, McDonalds, Pepsi, Dominos, Red Bull, Nestle to name a few.

What do they have in common?
They are all food and beverage companies.

I believe the authors’ framework for dynamically applying strategies based on geography, while still holds true, drastically dilutes when applied to food and beverage companies, and this can be evidenced by detailing the scheme for one of the companies – McDonalds.

McDonalds’ golden arches are said to be the most recognizable symbol in the world. It embodies the American dream and it is said that McDonalds is about the 200th biggest country in the world if all its worldwide restaurant area is integrated to form a single mainland.

How did it circumvent all the issues that the authors talk about and get there?
I believe the answer lies in the fact that food and beverage are among basic human vices;

Political and Social systems
McDonalds has to deal with social aspects such as conforming to religious food sentiments in a region. McDonalds doesn’t necessarily get entangled in debates about the specifics of the bureaucracy or the judiciary, given its simplistic franchise model and the appeal of fast food.

McDonalds has presence in 119 countries, which is the largest for a restaurant chain. It alludes to the fact that countries are more open to food and beverage ventures and that possibly a country’s FDI laws (Foreign direct investment) are least stringent on the food industry.

Product Markets
McDonalds has a glocal policy for their products. They have a set menu that provides the McDonalds experience all around the world like the Happy Meal, Egg McMuffin etc. whereas they have local menu items such as McArabia in the middle east.

Labor Markets
Working at a McDonalds has gained an urban reputation for requiring least amount of skill. McDonalds does not need to think long and hard about the labor and skills in different world locations.

Capital Markets
Capital markets are much less of a concern since McDonalds is in the low-cost food industry, much less susceptible to any local financial activity. Given their size, processes, and product appeal, the lack of sophistication in financial markets isn’t too much of a concern.

The same arguments hold for brands such as Subway, KFC etc. Food and drink are human needs that transcend culture and region, deeming diverse business climates inconsequential.

For the food and beverage industry, all the world is Rome, and everyone is a Roman.

McDonald's Winning Strategy, At Home and Abroad, Panos Mourdoukoutas -
How McDonald's CONQUERED the world, Adrian Lee -

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