2. Economic Factors
• Slowdown of the Chinese economy
• The number of Chinese citizens with expendable
incomes is increasing, and incomes are rising with a
growth in the Chinese middle class.
• China overtook the U.S in 2008 as the world’s largest
recipient of foreign capital
• A growing economy which is promoting business by
reinvestment plans of profit(refund of 40% taxes)
• infrastructure, resource availability, productivity and
development of business chain
3. Cont’d….
• Lower transaction cost due to established banking
system
• Inflation is under control which is 2.15%
• The firm already has more than 2,200 outlets in China
and McDonald's is to open 1,250 new restaurants in
China over the next five years
• Beijing, the city’s GDP per capita had jumped from
$250 to $1,049
• With the one-child policy still in place, it is more
convenient for parents to take their children to
McDonald’s.
• Chinese customers are willing to pay more for a better
consumer experiences.
4. Cont’d….
• During the recent recession it has protected its profit
margin by balancing its low priced menus with
premium products
• China’s GDP doubled between 2005 and 2009,
• The Chinese fast-food industry is now the fifth-
largest in the world
• The total value of the country's fast food market was
estimated at 690 billion yuan, up 8.5 percent from a
year ago.
• China is currently McDonald's third-largest market
5. Political forces
• The operations of McDonalds are affected by the government
policies on the regulations of fast food operation.
• Currently government are controlling the marketing of fast
food restaurant because of health concern such as
cardiovascular and cholesterol issue and obesity among the
young and children in the country.
• Good relationship with government in giving mutual benefits
such as employment and tax is a must for the company to
succeed in any Chinese market.
• McDonalds should also protect its workers by ensuring all the
hiring, compensation, training or repatriation is according to
Malaysian Labor Law as stipulated.
6. Legal forces
• As a certified fast food operator, there are many regulations
and procedures that McDonalds should follow in China.
• McDonalds should protect its integrity and consumer
confidence by ensuring all materials and process are as
claimed or must followed.
• Other legal requirement that the business owner should follow
as stipulated in laws are such as operating hours, business
registration, tax requirement, labor and employment laws and
quality & environment certification (such as ISO) in which the
outlet has been certified. The legal requirement is important
because the offenders will be fined or have their business
prohibited from operating which can be disastrous.
7. Technological forces
• It leads the world in number of internet users. The
number of internet users are 420 million and
online shopping is trending among Chinese
consumers.
– It can help with
• ordering
• forecasting sales
• foot traffic and
• easy customer payment for food.
• Technology can also be used for easy, inexpensive
advertising on the Internet, providing Wi-Fi and
even computing devices to satisfy customer
needs.
8. Cont’d…
• “Experience the Future”
• The outlet will cater to the core dining needs of customers
and offer digital personalized and customized experience
• Offering mobility (mobile ordering and mobile
payment services) to the customers through WeChat.
• WeChat alliance also enables customers to use game
credits for redeeming restaurant vouchers.
• And opening a social media "dialogue" with
customers.
9.
10. Intensity of Rivalry
The level of the intensity of rivalry is
medium
Higher Seller Concentration
China’s fast food industry has maintained
a high annual growth rate of 10%-20%
The most significant competitive threat
is from existing fast food providers such
as Burger king and KFC.
11. Threat of Substitutes
• The threat of substitutes in the fast food market in
China is low
• Young people see western fast food as an interesting
and quality cheap alternative to traditional meals
• White-collar workers in China’s major cities increase
the demand for convenience provided by the fast food
12. Buying power of Customers
• Buyer power in the fast food market in china is
medium
• The buyer concentration (volume) and switching cost
• In term of switching cost, as switching to a
competitor would not incur high cost.
• High buyer Concentration
13. New Entrance
• The risk of entry by potential competitors is strong
• The fast food industry is growing fast which will
attract new competitors
• The other hand the legal and industrial barriers such
as the fixed cost in setting up a fast food chain are
low.
14. Bargaining Power of Suppliers
• A supplier’s power is critical when they provide a
special input that the firm cannot get elsewhere
• Bargaining power of suppliers is low in the fast food
industry in China
• The materials provided by the suppliers to the fast
food firms such as flour are mostly standard products
with a large number of suppliers
• Fast food chains are large in purchasing volume
which help increase their bargaining power.
15. Forces Strength of the forces Descriptions
Threat of substitutes Lower
Preference of western food
among the youth; white-collar
workers need real “fast” food
Bargaining power of buyers Medium
low switching cost; high buyer
concentration;
Risk of entry by potential
competitors
Strong growing market attract new
competitors; low barriers to
entry (low investment
requirement);
Bargaining power of suppliers Low
large in number (suppliers), large
purchasing power by fast food
firms;
Intensity of rivalry among
established firms
Medium
annual growth rate of 10%-20%;
high seller concentration;
medium product differentiation
