McDonald’s Foreign Market Expansion in Tunisia
Introduction
McDonald’s is practically a global household name. With its multiple operations worldwide, the fast food company was able to achieve considerable profit and market growth. However, entering foreign markets is a risky and challenging business strategy. In order to carry out this strategy successfully, the company must analyze and learn the different aspects of the target country. Through this, the company will be able to implement the business approaches that would provide the best outcomes. In this paper, focus will be on the possible strategies that McDonald’s should apply if it plans to enter the Tunisian market. By considering the political, economic and cultural aspects of Tunisia, it has been cited that the company’s strategies should prioritize product differentiation, low costs, employment of local workforce and customer relations. The application of these activities can then contribute to the success of the company in entering the diverse Tunisian market.
The Industry
For years, McDonald’s has served millions of customers worldwide. With numerous outlets in other countries, the fast food company has learned to adapt with diverse cultures and customer preferences. The years of experience in food service had indeed made McDonald’s highly flexible to varying business requirements, making it one of the most successful food companies in the world. Nonetheless, the company still aims to operate to even more countries around the world. Tunisia is one of the countries that McDonald’s has yet to enter. With the company’s wide strategic experience and background on foreign market entry, McDonald’s must then apply similar tactics to operate effectively in Tunisia.
Target Country
Located in the northern Mediterranean coast of Africa, the Tunisian Republic is the smallest country found along the Atlas Mountains and bordered by Algeria and Libya. On the southern section of Tunisia is Africa’s Sahara desert, which takes up forty percent of the country’s total land area; the remaining land is made up of fertile soil with very accessible coasts. The location of Tunisia is strategically positioned as it became exposed to several historical civilizations including the Arabs, Phoenicians, Romans, Carthaginians and Ottoman Turks. Since 1881, Tunisia is a French colony; the nation eventually became independent in 1956. Modern Tunisia was led by for thirty years; the country then has been considered as an oasis of stability within North Africa. At Present, Tunisia is a known destination by tourists due to its beautiful beaches, warm climate, scenery and preserved historical sites ( 2006). As the country had been influenced by modern times and has been a popular site for tourism, putting a world-renowned food establishment like McDonald’s can then expect consumers from both the local and foreign sectors. In order to ensure the success of the company and the efficacy of its foreign market strategies for Tunisia, it is essential to take note of the country’s important political, economic and cultural features.
Political
Since the provision of Tunisia’s 1959 constitution, the country has been regarded as an independent, sovereign and free republic. The nation is led by a strong presidential system that is dominated by only one political party. The elected president of Tunisia serves the country within a term of five years; it is also the responsibility of the president to appoint the cabinet members and the Prime Minister who serve as the main actors on policy execution. The central administration is also in charge of designating the local administrators and the regional governors, while the municipal councils and the mayors are placed in position through election.
As a republican nation, Tunisia has an executive, legislative and judiciary bodies. The Chamber of Deputies is in charge of Tunisia’s legislative power and is made up of 182 members. It is in Tunis, the country’s capital and largest city, where the highest court of Tunisia is situated. The Court of Cassation is made up of three civil and one criminal sections; the elected president is the one that assigns the court’s judges. Finally, the local government of Tunisia is comprised of 23 governorates; each governorate is led by a governor who has been appointed by the president ( 2006). A strong republic, stable government and established regulations are good factors that could contribute to McDonald’s success in Tunisia. Political stability is an important aspect for foreign business efforts, particularly in obtaining administrative support and maintaining security.
Economic
Most of the economic activities of Tunisia are concentrated on manufacturing, petroleum production and tourism; moreover, the country’s import ratio is higher than its export rate. The economic development in Tunisia is also centered on its northern section. The government also serves an important function in the country’s economic activities, specifically by owning major industries, directing economic development, regulating activities and setting priorities. State-owned industries had been privatized by the government since the latter part of 1980s and new market reforms had been implemented. However, this has worsened the unemployment rate in the country. When Tunisia agreed to be part of the European Union in 1996, tariffs for foreign investors had been reduced. This encouraged European investment to enter the nation. Though Tunisia’s economy is relatively active, unemployment and underemployment are considered major issues (2006). The entry of McDonald’s in the country can then contribute to the alleviation of these problems in Tunisia. It will greatly help the country should McDonald’s hire locals to operate the business. In additional, this will also facilitate the acculturation of the Western company in Tunisia.
Aside from labor opportunities, Tunisia’s major economic contributor is its tourism industry. Moreover, the local administration had done significant efforts to expand and enhance the nation’s tourist facilities and sites. Based on 2004 reports, about 6 million tourists had visited Tunisia, resulting to a profit gain of about .9 million ( 2006). This important economic factor for McDonald’s Tunisian market entry as it can provide a diverse market opportunities for the company. While the company would need to concentrate on attracting local consumers, the high rates of foreign tourists who recognize the McDonald’s brand can serve as an important marketing factor. It is then essential that McDonald’s choose locations in Tunisia where tourist levels are high; examples of possible sites would be the country’s beaches and resorts.
Cultural
The country had been exposed to a number of historical civilizations, including the black Africans, Romans, Arabs and Vandals. However, the people of the nation are of Arab and Berber origins; most of them consider themselves as Arabs. The main language used in the country is then Arabic. Several Tunisians speak French and use it as their second language. Within the country’s isolated regions, especially in its southern part, some locals also speak Berber. Most of the country’s population is centered on its coastal plains. In addition, about two-thirds of Tunisia’s total population is found in the urban areas. Less people reside in the south due to its arid plateau ( 2006).
One of the important cultural factors that McDonald’s has to consider should it enter the Tunisian market, is it religion. About 98% of the Tunisian population is Muslim; majority of the Muslims in Tunisia are part of the Sunni branch. Other religions observed in the country include Protestantism, Greek Orthodox and Roman Catholic. Judaism is considered as Tunisia’s second largest religion, which has about 1,500 members. In the southern island of Djerba, Jewish beliefs are still observed by some for the past 2,000 years. The Christian population is relatively small; moreover, indigenous minorities have already conformed to the practices of the larger population (2006).
Considering that McDonald’s is a fast food company, it is essential that its food products are patterned after the religious beliefs of the larger population. It is then imperative that the company analyzes the Islamic belief and develop means on how to adapt its operations to this religion. In particular, it should be noted that the Muslims tend to abstain from certain food items not only for the purpose of observing religious teaching but also for health reasons. The Muslims are only allowed to eat foods that are nourishing and clean; thus, foods like pork, it by-products and other animals that have not gone through the slaughtering ritual are considered haraam or unclean. For this reason, it is necessary for McDonald’s to consider its food products. Though beef is an acceptable meat item in the Muslim tradition, other foods like fish, which has been part of the company’s international menu board, are not considered clean by other Islam followers. Moreover, the meat that will be used by the food company should go through certain rituals. The company could then consider using kosher food ingredients to ensure that the menu items are clean and acceptable to the locals.
Literature and Relevant Theories
Since the focus of the discussion is on foreign market entry, literatures and theories on international business and marketing are the most related. The need to balance global visions with the interest of the local market is essential in international marketing. In order to successfully operate abroad, business owners should indeed act like a Frenchman in France as well as an Italian in Italy. Local responsiveness is the common term used to describe this international marketing concept. (1986) once referred to this as the transnational solution. As discussed further by this author, the international efficiency among business firms in the 1990s can be achieved by means of meeting the differentiated demands of the local market and responding to their respective governmental pressures and regulations.
Perhaps one good example of this practice is the growing interest of Western businesses in operating in China. In order to operate successfully in China, Western firms would have to adjust to the Chinese ways and environment. Foreign business operators must have to familiarize themselves with the business norms and practices in China rather than just apply Western influences. In general, foreign investors would have to align their economic goals with that of the Chinese economic leaders ( 2003). In this way, a common business goal is established and harmonious relations are maintained.
The theory of local responsiveness and global integration suggests that the differences of countries in various aspects should be taken seriously. Business operators should not underestimate the value of local knowledge in global business as this will help them fulfill their international objectives. Multinational firms should then tailor their approaches in accordance to their local markets’ needs. Doing this strategy is where the challenge begins.
According to (2003), entering a foreign market should involve the reconsideration of the businesses’ marketing strategies. They must first develop a mass-marketing mindset. With this, the businesses should pay particular attention to local aspects such as consumer needs and price competitiveness. All the international marketing efforts of the business should then focus on how to reach out to these local markets. One way of doing so is through product modification. As discussed earlier, majority of the population of Tunisia are Muslims; thus, food taboos should be avoided. Multinational companies can transfer their developed global brands into a new market by means of changing their products’ formulation, prices or packaging. This in turn will increase the products’ appeal to both consumers and retailers. Doing this globalization strategy however, naturally requires considerable investment. Still, this will make multinational companies at par with the local companies.
Aside from modifying the products, entering a foreign market can be made more successful by means of hiring the locals. In an article by (2004), the success of Coca-Cola was emphasized by relating it to the company’s high level of local responsiveness. By its effective strategy of adapting with the needs of the local market as well as its innovativeness, Coca-Cola continues to prosper all over the world. One of the important international marketing strategies of the company is its “Think local. Act local” policy. With this, the company gives the locals the opportunity to handle its main operations. This practice is based on the belief that the local workforce knows what consumers need and seek. The local workforce understands the consumers’ various issues more than anyone else. This then resulted to the creation of relationship-based Coca-Cola products. Aside from the local workforce, the company also has multinational innovation centers. These are focused on the experimentation of various new products that suit local tastes.
In the case of McDonald’s entering Tunisia, the target country has a different cultural setting; hence, it is important that the company adopts the target country’s cultural background and preferences in order to penetrate the foreign market.
Appropriate Strategies
McDonald’s already has a long list of foreign markets; it must then consider adapting its business and marketing strategies in relation to foreign market entry. One of the related strategies that have been applied by the company in entering foreign markets is product differentiation. Teriyaki burgers in Japan, McPork Burgers and McTempeh in Indonesia, McSpaghetti in the Philippines and McLox Salmon sandwiches in Norway are some of the concrete examples of McDonald’s ability to modify its products based on international tastes and preferences. This is an important strategy for McDonald’s in Tunisia since the target consumers’ observe certain dietary laws.
McDonald’s actually encountered a similar challenge when its entered the Indian market. In this country, majority of the population are vegetarians and consider killing of cows as a sacrilege act. As McDonald’s typically serve beef burgers and non-spicy food items, the company would have to drastically change its menu for the Indian market. Mutton was used in place of beef; ordinary ketchup and mustard dressings were replaced with spicier sauces; vegetable salads and chicken kebabs were also served to cater to the Muslim population. These are some of the many changes that McDonald’s did in order to gain entry to the Indian market (2001).
One of the strategies that helped McDonald’s to enter India is the integrated cost leadership and differentiation strategy. As a global corporation, McDonald’s has long been capable of providing food products at low cost with differentiated characteristics. Through the company’s global coverage, franchise relations as well as standardized processes, McDonald’s is able to lower the prices of its food items. On the other hand, by means of the company’s strong brand name and product consistency, McDonald’s is able to apply the differentiation strategy, allowing the company to charge slightly higher prices. In other words, the integrated cost leadership and differentiation strategy that is applied by the company allows it to balance out its important business elements (2003). The company can then consider the adaptation of a similar strategy. Considering that the status of the Tunisians are affected by the high unemployment rates in the country, offering a differentiated product at lower prices can probably work for the new foreign market. By doing so, the company will not only have a higher chance of success but will also comply with the theory of local responsiveness.
In addition to modifying the nature and cost of the products, the company should also consider employing the locals for its operations. Through these, the company can help reduce unemployment rates in the country, especially once multiple branches are established in Tunisia. The McDonald’s should also ensure that feedbacks from the consumers are obtained; this will help in improving the service of the company in the future. One way of doing so is through customer relationship management (CRM). CRM is concentrated on the use of information technology so as to aid the organization to stay abreast of its customers’ needs and concerns. This also helps the organization to respond in time and appropriately to their customers’ concerns. This will be helpful for the company in entering Tunisia, especially since the country a rich and diverse cultural background.
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