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PEST Analysis

Discuss about the McDonalds Analysis: PESTLE and PORTERs Analysis.

McDonalds is a very famous company based in U.S. and was founded by Maurice and Richard in the year 1940. It is one of the largest fast food chains of hamburgers. There are about 119 countries where McDonalds is present and it serves about more than 68 million customers each day. There are more than 34000 locations of McDonalds all over the world. McDonalds is a public company that is listed as MCD on NYSE. Some of the main products of McDonalds include hamburgers, soft drink, chicken, and coffee, salads, French fries, desserts and breakfasts. (Association, 2011)The position of McDonalds is as a global leader in the fast food restaurant market. The company is also present in Singapore and is located in 71 W coast Hwy etc food business could be understood in a better way in the country on 200 Stadium Boulevard. This report further includes the PEST analysis and the Porter’s five forces model analysis of McDonalds in Singapore so that the market environment of fast of Singapore.

One of the techniques for analyzing the external environment of a business is PEST analysis. The word PEST basically stands for Political, Economical, Social and Technological factor that affects the business. The PEST analysis of McDonalds is as follows:

The business of the McDonalds was started in the year 1979. Currently there are 110 restaurants in Singapore and the company serves about 1.2 million people each weak. The operations of the McDonalds are influenced highly by the political situations of various states. (Murphey, 2000)The various changes that take place in the country affect the business of the McDonalds. The changes the affects the business of the McDonalds includes the changes in the labor laws, food administration, taxation and health related laws.

Political Factors

While going through the political considerations of the Singapore it was found that Singapore is a bureaucratic country and all the political powers of Singapore are in the hands of the government. It is believed by the government of Singapore to communicate the efforts directly to its public rather than taking any kind of opinions from the public. The politics of the Singapore is a mixture or bureaucracy and democracy. (Roper, 2012)When we move towards the business of McDonalds then it can be seen that the company handles various political situations in its business operations. There are many problems that are being faced by the company at various places for examples the rules and regulations keep on changing from time to time due to the health implications of the fast food like the cholesterol and the obesity. It is not a difficult task for McDonalds to handle the political situations of the Singapore.

Political Factors

There are various industries all over the world that often attracts the economy of Singapore. Singapore has been ranked as the second most open economy by the Heritage Foundation’s Index. As seen to the macroeconomic terms it can be concluded that the economy of Singapore is highly stable. (Service, 2015) Singapore does not have any kind of foreign debt on itself and the revenue of the government is very high and is very surplus consistently. (Baraban, 2010)The economy of the Singapore was shown by the country during the financial crises. In the year 2007-08 the there was economic slowdown all over the world and in Singapore many companies slide down due to that slowdown but still Singapore showed economic stability. (Caterersearch, 2011) Also in the year 2010 Singapore was one of the emerging fastest growing economy in the world when many countries that were very powerful were struggling in the world, some of the countries that were struggling were Europe and U.S. The area of Singapore has very less resources and the area is also not very big. The important industries that often contribute in the economy of Singapore further development are:

  • Tourism
  • Exports of various machinery and electronic items
  • Largest cargo seaport all over the world
  • Financial services

When considering the fast food business it can be very well said that the Singapore economy is very beneficial for this industry (fast food industry). (Franchises, 2011) Singapore has a very wide scope for the fast food sector for different kind of people as it is the tourist place. The rate at which the economy of Singapore is growing is estimated to be 4.9% and also the disposable income of Singapore is very high. The country has a GDP of $318.9 billion. The country attracts the fast food business due to its high GDP, per capita income and continuous growth. McDonalds has been very established in Singapore and covered its area in a very successful manner.

McDonalds deals with the socio-cultural issues in a very efficient manner. The quality of life in Singapore has helped McDonalds to be successful there as the people in Singapore lead a high quality of life. It is of the smallest country in the area of South east but it poses a best quality of life. The people with varied social and cultural background are present in Singapore. (Myownspunk, 2011)But the tourists who often visit Singapore come from different places and have different tastes and preferences.

The Singapore has materialistic culture and the people often face constant pressure. The life of the people is maintained by 5C’s Car, Cash, Condo, Country club and Credit card. Though there was too much of stress in Singapore still it was named as one of the happiest countries in Asia. McDonalds does not have to face much of difficulty in doing its business in Singapore. (Rainsford, 2001)

Economical Factors

A very big role is being played by the technology in the development of any country. As Singapore is very well developed in terms of technology so this helps the McDonalds in the marketing , distribution and production. The main advertising technique that is used by McDonalds is television commercials for the marketing of its products. (Gad, 2011) There are various developments in the internet facilities that has helped McDonalds in the establishment of its business.

The position of the McDonalds in the market is due to its very good response to the five forces in the industry environment. The porter’s five forces helps in the identification of the various external factors that influence the company. (Roy, 2011) The following intensities is yielded by the five forces analysis of McDonalds:

  • Competition/ competitive rivalry (Strong)
  • Threat of substitutes (Strong force)
  • Bargaining power of the customers or the buyers ( strong force)
  • The bargaining power of the suppliers (weak force)
  • The threat of new entrants ( moderate force)

A very tough competition is being faced by the McDonalds due to the saturation of the fast food industry. The below mentioned external factors affects the competitive rivalry of the McDonalds:

  • Low switching cost (very strong)
  • High number of firms (strong force)
  • The aggressiveness of the firms is also very high ( strong force)

There are many firms of various sizes in the fast food industry like the global chains which includes McDonalds and various local mom and pop restaurants. Also there are various medium and large firms that keep on marketing their products. (Maybury, 2000)The switching costs of the customers of the McDonalds is very low that means that the customers can easily transferred to various other restaurants like Wendy’s. So, it can be concluded that this is a very strong force that affects the business of McDonalds.

The power of the customers shall be dealt by the McDonalds significantly. This force deals with the demands and the influences of the customers. (Grundy, 2006)In the case of McDonalds following are the forces that affect the bargaining power of the buyers:

  • High Availability of the substitutes (strong)
  • The switching cost is low(strong)
  • Large number of providers(strong)

As it’s very easy to change from one restaurant to another which means that the switching cost is low in case of McDonalds the customers can easily move to other restaurants. As the saturation is there in the countries like Singapore the customers can easily shift from McDonalds to other restaurants if they are not satisfied. (Dobbs, 2014) It is required that the McDonalds develop various strategies so that the loyalty of the customers is maintained.

There are various suppliers that influence the McDonalds. This element shows the impact that the suppliers have on the McDonalds. Following are the various factors:

  • Low vertical integration(weak force)
  • High overall supply(weak force)

There is a large population of suppliers due to which the individual suppliers are affected; this is due to the lack of regional and global alliance of the suppliers. (Burke, 2010) According to this element it can be concluded that the power of the supplier is minimal for the McDonalds.

Social Factors

One of the main concerns for the McDonalds is the threat of the suppliers. Following are the factor that affects this element:

  • Low switching costs (strong force)
  • High performance and cost ratio (strong force)
  • High availability of the substitutes (strong force)

There are lots of substitutes for the McDonalds, also consumers have the option for cooking their food by themselves and it is very easy for the consumers to shift to other substitutes at a low cost.

The market share of the McDonalds can be impacted by the new entrants. Some of the external factors that are affecting this element are:

  • Moderate cost of capital (moderate force)
  • Low costs of switching (strong force)
  • High cost of development of brand (weak force)

As the cost of switching which is very low the consumers can easily shift from the McDonalds to other options. (Greogary, 2015)This shows that the threat of new entrants is moderate in the case of McDonalds and it shall take various steps to improve that.

According to the PESTLE analysis of McDonalds it has been observed that there are various opportunities for the growth of the McDonalds. The company can take the opportunities by capitalizing on the technological strategies so that the productivity and the efficiency can be enhanced. (Gillespie, 2007) The Product quality of the McDonalds can also be improved so that the political or the socio-cultural factors can be enhanced. The indication given by the PEST analysis is that the company needs to develop various strategies to deal with the potential threats. There are various opportunities for the McDonalds if it expands its operations in the high-growth economies like the South-East Asian countries.

Conclusion:

At last it can be concluded that the McDonalds is the largest company in the business of fast food and it has a very well established business in all the parts or the countries of the world. In Singapore as well it has developed itself in a very well manner. The PEST analysis of the McDonalds in Singapore recommends that it is the recommended country to carry on the business of fast food as this country has a continuously growing economy. As the Singapore is tourism based country so there are very high amount of opportunities available for the successful running of the fast food business. The various political, social, economical and legal aspects are in favor of the fast food business. Though there are few factors according to the porter’s model that are not in favor of McDonalds but those factors can also be very well addressed by formulating and implementing the various strategies. The company has ample opportunities for expanding its operations in the high-growth economies that includes the South East Asian countries which can prove out to be very beneficial for the McDonalds.

References

Association, H. I. (2011). An Introduction to PESTLE Analysis. HIA Ltd.

Baraban, R. (2010). Successful Restaurant Design. London: John Wiley & Sons.

Burke, A. v. (2010). Blue ocean vs. five forces. Harvard Business Review , 88(5), 28-29.

Caterersearch. (2011). McDonalds restaurants. [Internet], Leeds, LeedsMetropolitanUniversity. Retrieved JUly 23, 2016, from <https://www.mcdonalds.ca/en/aboutus/faq.aspx>

Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. . Competitiveness Review, , 24(1)., 32-45.

Franchises. (2011). McDonalds. [Internet], Leeds, LeedsMetropolitanUniversity. Retrieved July 23, 2016, from <https://franchises.about.com/b/2011/05/26/mcdonalds-renovations.htm>

Gad. (2011). Population prediction. [Internet], Leeds, LeedsMetropolitanUniversity. Retrieved July 23, 2016, from https://www.gad.gov.uk/Documents/Demography/Projections/2000-based_National_population_projections.pdf

Gillespie, A. (2007). PESTEL analysis of the macro-environment. Foundations of Economics,. USA: Oxford University Press.

Greogary, L. (2015). Panmore Institute. Retrieved July 23, 2016, from https://panmore.com/mcdonalds-five-forces-analysis-porters-model

Grundy, T. (2006). Rethinking and reinventing Michael Porter’s five forces model. . Strategic Change, , 15(5), 213-229.

Maybury, M. T. (2000). Five forces. In System Sciences,. Proceedings of the Twenty-Fifth Hawaii International Conference on , Vol. 4, pp. 579-588.

Murphey, M. &. (2000). UCF Research Guides. Industry Analysis. PESTLE Analysis. . Business Horizons, , 17(5), 27-38.

Myownspunk. (2011). Hamburger-Robot. [Internet], Leeds, LeedsMetropolitanUniversity. . Retrieved July 23, 2016, from https://www.myownspunk.com/robots/lego-hamburger-robot

Rainsford, P. (2001). The restaurant start up guide. London: Kaplan professional company.

Roper, K. (2012). BIM Implementation: PESTEL Drivers & Barriers. (Cross-national Analysis). In World Workplace .

Roy, D. (2011). Strategic Foresight and Porter’s Five Forces. . New York: GRIN Verlag.

Service, U. S. (2015). United States Department of Agriculture Economic Research Service. Retrieved July 23, 2016, from https://www.ers.usda.gov/topics/food-markets-prices/food-service-industry/market-segments.aspx

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