Introduction Advancementof modern technology has led to increase in trade across countries physicallyand through ecommerce.
Industries adopt globalization strategy in order to reacha wider market share in different markets across different countries. However,in globalizing their operations, industries can either be multi-domestic orglobal industries. Both global and multidomestic industries are similar in thatthey have operations in more than one country. However the underlyingdifference is the strategy adopted by each industry for expansion in the globalmarket. Global industries compete in all the markets and offer homogenousproducts to their customers whereas multi-domestic industries compete in eachmarket separately and independently. The paper examines the drivers ofglobalization in the Fast Food industry which has evolved significantly overthe one century.
Industry definitionFastfood industry refers to the collection of firms/businesses that provide massproduced food usually produced very fast and served quickly at low costs. Thefood is packaged in bags and boxes to reduce operational costs. Fast Foodindustry has become quite popular over the past two decades due to the highconvenience provided by these firms where customers are able to serve food viaa drive-through given the low time required to prepare it. However, the foodhas been criticized because of being less nutritious compared to traditionalmeals.Brief history of Fast food industry development Theintroduction of the white castle in 1921 marked the start of the fast foodindustry (Makhija, Kim &Williamson, 1997). After the popularization of automobiles, life becameincreasing faster and people needed convenience in access to food, hence foodthat could be prepared and served quickly become highly demanded. Theintroduction of assembly line by McDonald’s further increased the speed of preparationof fast food which enhanced efficient and increased flow of money thusattracting many firms in the industry (“FastFood Industry Analysis 2018 – Cost & Trends”, 2018).
Currently, thereare many firms across globe with the market leaders being McDonalds who wereable to exploit the first mover advantages in the market.Industry globalizationdrivers in fast food industryMarketdriver Oneof the major determinants of the strategy adopted by a company during itsexpansion is the market drivers (“TheGlobalization of Companies and Industries”, 2018). Based on the type ofproducts and services offered in the market, the industry expands to the globalmarket through adaptation of its products and services to the local markets or provisionof homogenous products in the global market. Hence, the degree of homogeneityof the customer needs, tastes and preferences, global distribution networks aswell as the existence of the opportunities for shared marketing are the majordeterminants of expansion strategy adopted in various industries (“TheGlobalization of Companies and Industries”, 2018). Fast food industryprovides similar but not identical products to its consumers. Because theindustry is involved in provision of food and beverages, the cuisines ofdifferent countries implies that expansion through adaptation of their productsto the local cuisines has been the best strategy that has enabled the industryto achieve tremendous success across the globe.
Further, national competitionin the local markets is common hence the need to provide customized productsthat create value for their customers (“TheGlobalization of Companies and Industries”, 2018). Moreover, because ofthe easy transferability of knowhow in production of fast food in variouscountries, the industry has been able to expand without incurring huge expansioncosts, mainly through franchising. For instance, McDonalds’s operates over31000 restaurants across 119 countries in all the six continents. They employover 1.5 million people who are skilled in operations of McDonalds despitetheir various cultural backgrounds (“Fast Food Industry Analysis 2018 -Cost & Trends”, 2018).
McDonalds adjusts the products provided to thelocal culture of the host country. For instance, Indian McDonalds outlets donot serve beef because cows are considered sacred in India.Cost driver Costdrivers that drive globalization include the potential for or lack of existenceof economies of scale, low costs of transportations, and low productdevelopment costs (Makhija,Kim & Williamson, 1997). Globalizing the customer needs as well as theexistence of opportunities for economies of scale are key determinants of costsincurred in running the operations of a firm in an industry and hence itsprofit (“Globalization,Fast Food and the “Threat” to Local Culture – The Global Entrepreneur”,2018). The fast food industry have evolved and expanded by adopting the multidomesticapproach due to the industry’s ability to cut costs through separations ofoperations in each market.
Across the globe, the industry maintains samestandards, same distribution channels and most of products used in preparationsof their products such as oils are the same. However, the products are adaptedto the local culture to ensure the acceptability by the local customers. Thefirm has franchised its operations due to easy transferability of knowledgeknowhow, reduction of costs of operations through use of local distribution channelsand easy access of input resources from the central distribution channel. Inaddition, the fast food industry, cannot take advantages of economies of scalebecause they do not exist in the industry hence the adoption of themultidomestic approach for growth and expansion in the global markets. Further,product development and sourcing is different in various parts of the world.Due to existence of low barriers of entry in the industry, the industry adoptedthe multidomestic approach in order to compete effectively with the local firmsthat provide fast food and hence establish their own unique market niche bytaking advantage of their global popular brands.
Further, location speed and efficiencyhas seen the fast food industry continuously minimize costs of operations whilemaximizing the profits as they create even more unique value for theircustomers.Government driver Governmentdrivers to globalization refers to the trade policies, ownership rules, commonregulations of marketing and the compatibility of the technical standardsauthorized in each country/market (Makhija,Kim & Williamson, 1997). These factors have huge impacts on global tradeand hence they are key determinants in determining the expansion strategyadopted by any industry. For instance, most of the firms in the fast foodindustry have been expanding through Franchising where the original businessowners provide Franchise license to respective franchisees in every country inexchange for franchising fee. For this arrangement to work, the new market inwhich the firm is expanding must be accommodative to franchise arrangements. However,expanding in developed economies for fast food industry has been difficultcompared to expansion in the emerging markets. This is mainly attributed to thecurrent climate in developed economies such as complex regulatory framework,restrictions on taxes, increasing regulations on ethanol resulting to increasedcosts of beef.
Other impediments are the rising costs of wages and labour. Thecosts of labour in developing economies is usually lower and there are fewtrade restrictions as governments seek to attract foreign investors and createmore jobs for the locals. However, to curb these costs and maintainprofitability, firms in the fast food industry have adopted technology and incorporatedit in their operations. Hence, as a result of these factors, the industry isbest suited to adopt the multidomestic approach of expansion to the globalmarket.Competitive driver Competitivedrivers are other major drivers of globalization in any industry. Competitivedrivers refers to the tender of all firms in a particular industry to adopt aglobal strategy by following a differentiated globalization strategy (Makhija, Kim & Williamson, 1997). For instance, expansion of McDonald’s in theglobal economy opened way for other firms in the industry to start franchisingtheir operations in the international markets in order to beat competition,popularize their brands and reach more customers.
The characteristics of theindustry such as the exports and import volume of sales, diversity of thenumber of competitor in the market based on their origins, extend to which the existingmarket players have globalized their operations and interdependent of nationsaffect operations across the globe. The globalization of the global economy,has led to increased trade between nations and opening of new economies as wellas easing the restrictions of trade through creation of trade zones, tradeagreements and relaxation of market barriers which have paved way for thrivingof the Fast food industry in the globe. In addition, the increased levels ofpartnerships and focus on engagements has enabled faster growth of the fastfood industry. This is because of the advantages associated with adaptation ofthe firm’s products to the local economies and the potential of businesses tocreate opportunities for the locals. Why the industry is multi-domestic or globalized Variousfactors affect the choice of multi-domestic strategy approach or globalizedstrategy approach. In the fast food industry, there is customized productsneeded in different countries, existence of national competition, existence ofunique distribution channels and low or lack of economies of scale hence theadoption of multidomestic approach in expansion (Makhija,Kim & Williamson, 1997).
These are the main factors that influence anindustry to adopt the multi-domestic approach for expansion in the globalmarket.The adoption of globalstrategy would be inappropriate for the fast food industry because industriesadopting global strategy must have homogenized products with needs that cutacross the markets such as the case in motor vehicle industry, have global customers,enjoy economies of scale and have high costs associated with research anddevelopment for new products such as it is the case in the production ofaeroplanes. Further, such firms should also have a global product differentiatestrategy, appropriate technology and product mobility across markets.