How McDonald’s has learned to embrace globalisation and glocalisation
Vegetarian McDonald’s outlets are being developed in Amritsar, home to the Golden Temple, the holiest site of India’s minority Sikh faith, and in the town of Katra, the base for Hindus visiting the mountain shrine of Vaishno Devi, the second busiest pilgrimage spot in India.
Abandoning meat altogether is a significant step for this transnational corporation (TNC) to take, given that its brand is intimately linked with beefy ‘hamburger’ sales. In addition, as part of a joint venture within India, McDonald’s has also agreed to share its profits in India with local firms.
This article explores the lengths TNCs are prepared to go to in order to access new markets and how they adapt and change their business in order to achieve this. These localised changes – sometimes called ‘glocalisation’ – can result in quite radical changes being made in the way goods and products are provided for local markets. We also investigate some places where McDonald’s has closed down its stores, rather than opening new ones. All of which leads us to ask: does globalisation really lead to a loss of local cultural diversity, as some critics suggest, if interesting and complex changes in the geography of consumption are taking place at the local scale?
Globalisation, glocalisation and cultural diversity
Is the global spread of TNCs and their branded goods really leading to a planet-wide loss of cultural diversity? Or are outcomes actually more complex, particularly as TNCs often adapt their products and foods to the tastes and preferences of different local markets?
Transnational Corporations are important players who help bring about globalisation by creating cross-border economic linkages between nations on a global scale. McDonald’s, for instance, sources products like beef and salad ingredients from many different places all across the world. It also strives to sell its food to as many markets as possible, using a range of strategies to maximise chances of success (Financial Times, 04 September 2012). Two important methods for geographers to be aware of are glocalisation and joint ventures.
When TNCs customise their products for sale in local markets, in an attempt to boost sales and profits, the practice is called glocalisation. This strategy has developed over time, starting with the local sourcing of parts by TNCs when establishing their first branch plants overseas (using components from local suppliers reduces transport and import tariff costs; also, with food products it means ingredients are fresh). Providing local suppliers with a new market can lead to TNCs being seen as a valued part of the local business community.
The use of local ingredients sometimes brings a change in taste for food and drink products. In South Africa, beer is often brewed by TNCs using locally-grown cassava or sorghum rather than grains like barley (that are used in brewing in Europe). Diageo (the maker of Guinness) and SABMiller quickly recognised that local South African customers actually prefer the taste when cassava is used. In fact, it is now ‘common sense’ for large TNCs to customise their products to meet indigenous tastes in order to increase their chances of success when entering local markets around the globe.
Glocalisation is sometimes the outcome of a political requirement for TNCs to work closely with local businesses. Some countries like India insist that TNCs work in partnership, through joint ventures, with indigenous firms. McDonald’s restaurants there are run as joint ventures with local Indian companies who re-design the menu in partnership with the TNC to take account of local tastes and customs. The profits are also shared by the partnership.
Geographer Peter Jackson has written about glocalisation as ‘local consumptions in a globalizing world’. In Transactions of the Institute of British Geographers, he wrote in 2004: ‘For all the corporate energy that has gone into creating a single global message and despite the increasing transnational flow of people, money and artefacts, cultural homogenisation is still far from being achieved. Rather than rolling their existing products across a geographically undifferentiated market, producers have had to adapt their global brands to a variety of local conditions. Paradoxically, then, globalisation has itself required companies to adopt a variety of localizing strategies in order to succeed commercially’ (we previously explored Peter Jackson’s analysis on glocalisation in our case study of Spiderman India in 2004).
Emerging markets and fast food
The business community uses phrases like ‘emerging markets’ or ‘emerging economies’ to describe middle-income countries where rapid industrialisation and growing consumption are now taking place. You may be more used to talking about newly industrialised countries (NICs) or the BRIC group (Brazil, Russia, India and China). Whatever label is used, these countries offer major expansion opportunities to TNCS, especially with high-street sales stagnating in the EU and North America, following the global economic downturn that began in 2008.
TNCs are especially interested in building their business in the largest emerging markets, comprising of nearly one half of the world’s entire population:
Brazil (190 million people of whom 105 million earn more than US$10 a day) and Mexico (110 million people, 65 per cent of whom are middle-income earners)
China (the world’s largest market for many products; one quarter of its 1.43 billion people are now middle-income earners of more than US$3,650 a year)
India (a small, but rapidly growing percentage of its 1.2 billion people are consumers of luxury goods, and India has a growing middle class) and Indonesia (a large emerging market of nearly 250 million people, one-fifth of whom are middle-income earners)
The diversity debate
The global diffusion of fast food often gets discussed in relation to a fear that globalisation is responsible for cultural homogenisation on a global scale. There is concern that local cultures are being ‘extinguished’ as a result of the global ‘roll-out’ of uniform services, such as McDonald’s restaurants - some people even term it ‘McDonaldisation’!
In extreme cases, this process of homogenisation gets described as cultural imperialism.
However, the case for reduced diversity is not a clear-cut one. As we shall see in the next section, some McDonald’s menus in India have remained entirely vegetarian. If the offerings of fast food TNCs are sufficiently varied in each different territory, then perhaps global culture is not becoming increasingly homogenous (the same) after all? For example, foreign chain restaurants account for less than 5 per cent of India’s total fast-food market. It can be a very inaccurate assumption that just because an individual eats in a fast food restaurant run by an international company, be it McDonald’s or another company, that this must mean that their existing sense of identity, nationally or religious beliefs are automatically diminished.
Finally, it is important to note that the global diffusion of fast-food is not always a permanent process. McDonald’s restaurants are closing all the time, as well as opening. This is a theme we shall explore in the final section of this article.
McDonald’s India has become a very popular case study with students of all ages when writing about glocalisation and TNCs. Here we take a closer look at the economic, cultural and political reasons why McDonald’s has formed a profit-sharing partnership with local businesses in India. We also explore the background behind two new totally meat-free restaurants.
By 2011, McDonald’s had established 33,510 restaurants in 119 countries. The business is managed as three distinct geographic segments. These are the USA, Europe, and ‘Asia Pacific, Middle East and Africa’. Expansion in the last of these (APMEA in its abbreviated form) is very important for McDonald’s, on account of its high potential for growth. China, for example, is a major emerging economy where the company plans to increase its number of restaurants from 1,400 to 2,000 by the end of 2013.
India is another important market for McDonald’s. There, glocalisation strategies have been very successfully employed by business partnerships established between the TNC and two local firms. To date, there are 271 McDonald’s restaurants in India (by comparison there are over 1,200 in the UK).
In 1991 India undertook sweeping financial reforms which opened up the country to foreign investment, such as from the big global TNCs. Previously external financial investment in the Indian economy had been very limited. McDonald’s laid its groundwork for five years, researching the market carefully before stepping in. In 1996, it opened its first restaurant and hundreds more have since followed
Indian McDonald’s restaurants are run in partnership with two local companies. This was the TNC’s preferred model of business given that, until recently, there were some very strict rules on the proportion of an Indian high street business that could be foreign-owned. In India, McDonald's works alongside two indigenous firms. Firstly, Hardcastle Restaurants runs McDonald's operations in West India and South India. This relationship began as a joint venture, but McDonald’s has now reverted to a simple licensing with Hardcastle. McDonald's restaurants in North India and East India are managed by Vikram Bakshi's Connaught Plaza Restaurants Private Limited. This remains a joint venture with the McDonald's Corporation
India’s huge and diverse market has certainly posed cultural challenges for McDonald’s. Hindus, the largest religious group in India, are traditionally vegetarian and treat the cow as sacred. There are also over 100 million Muslims in India, and they do not eat pork, and many Sikhs are vegetarians. As a result, the first beef-less and pork-less McDonald’s menus in the world were introduced. Vikram Bakshi (the Managing Director of McDonald’s India) says ‘We know the Indian culture, because we were born in it, inherited its richness, and respect it greatly. It is the respect for this culture and the sentiments of many of our customers, that we do not serve any beef and pork items in our restaurants’
Lamb burgers had been introduced but were not popular and were later abandoned. Today, McDonald’s primarily serves chicken burgers in its Indian restaurants alongside a menu of vegetarian meals: the McVeggie, a patty of carrots, peas and potato; the McAloo Tikki, a deep fried patty of spicy mashed potatoes; and McSpicy Paneer, a patty of traditional Indian cheese
McDonald’s also pioneered use of a ‘cold chain’ as part of its local sourcing strategy for meat, cheese, salad and other ingredients in India. This involves the warehousing, transportation and retailing of perishable food products all under controlled low temperatures.
One step beyond
In 2012, McDonald’s took the step of opening two entirely meat-free vegetarian restaurants in India (Financial Times, 04 September 2012). Religious pilgrims to two of India’s most sacred spiritual sites will soon find the golden arches of McDonald’s waiting there for them. The vegetarian outlets are being developed in Amritsar, home to the Golden Temple, the holiest site of India’s minority Sikh faith, and the town of Katra, the base for Hindus visiting the mountain shrine of Vaishno Devi, the second busiest pilgrimage spot in India.
‘A vegetarian store makes absolute sense in the places which are famous as pilgrimage sites,’ said Rajesh Kumar Maini, a spokesman for McDonald’s India. Around 8 million pilgrims pass through Katra annually, making this a big potential market. The Golden Temple draws tens of thousands of visitors a day not just from India, but from Sikhs all over the world who are part of the Indian diaspora (descendants of migrants who left India, often many generations ago).
The move has not been popular with some people, however, and provides an example of how globalisation is sometimes resisted or contested by local people. According to The Daily Telegraph (04 September 2012), the Hindu nationalist group Swadeshi Jagran Manch, a branch of the influential Hindu nationalist organisation, Rashtriya Swayamsevak Sangh (RSS), said it would oppose McDonald's plans and described them as an attempt to ‘humiliate Hindus’. ‘It's an attempt not only to make money but also to deliberately humiliate Hindus. It is an organisation associated with cow slaughter. If we make an announcement that they're slaughtering cows, people won't eat there. We are definitely going to fight it,’ a spokesperson told the newspaper.
Interestingly, McDonald’s is not the first foreign food chain to strike meat off the menu in some of its Indian stores. US-based sandwich chain Subway, which has 280 outlets across India, already has an entirely vegetarian restaurant in the state of Punjab on a private university campus, whose owners are strict vegetarians. Domino’s Pizza also has pure vegetarian outlets in some neighbourhoods of Mumbai and Gujarat, where most residents are strict followers of the vegetarian Jain faith (Financial Times, 04 September 2012).
Every year, McDonald’s opens new restaurants, further spreading its influence globally. However, there are closures too and it has even been known for the company to leave a country altogether.
In 2011, McDonald’s opened 1,150 new stores but also closed 377. What factors lead the company to leave some places? Does the TNC always pull out from a site willingly, or is it sometimes pushed?
Milan, Italy 2012
After 20 years of serving burgers and chips in Milan’s luxury 19th century Galleria Vittorio Emanuele II shopping arcade next to the likes of Gucci, McDonald’s ‘has been booted out to make way for another Prada store. The restaurant, McDonald’s third-busiest in Italy – after one at the base of Rome’s Spanish Steps and another in Milan’s Piazza Duomo – turned off the hamburger cooker, the chips deep fryer and the soda dispensers for the last time’ (Financial Times, 16 October 2012). McDonald’s was the only business resident on the Galleria whose rental tenancy was not renewed, leading Roberto Masi, chief executive of McDonald's in Italy, to say ‘we were kicked out unfairly’. The restaurant ‘has always stood out with Louis Vuitton to its right and Prada in front, both of which this week have purses in their windows for sale at more than €1,000’ noted the Financial Times (suggesting that the Galleria’s owners might be looking for a more ‘up-class’ client to fill the retail unit left empty by the departure of McDonald’s).
Rochdale, UK, 2011
This recent closure has its roots in the current global economic turndown that is making life tough for many people and places in the UK and Eurozone countries. In Rochdale, the 29th most deprived authority out of 326 in English indices of deprivation in 2010, locals were saddened by the news, reported the Guardian (25 November 2011). ‘The restaurant's windows are boarded and its familiar red and yellow sign, a visible landmark in the Lancashire town for 28 years, has been removed... On the steps outside the boarded-up restaurant, a group of around 10 teenagers greeted the closure with dismay. "It's symbolic. It means Rochdale is rubbish. Official." added Adam Brennan, 16. Where would they go now? "Chicken Cottage," said one.’
Reykjavik, Iceland, 2009
We previously reported on the string of closures in Iceland’s capital in the article credit crunch geography. The Financial Times (27 October 2009) noted that this closure resulted in Iceland, one of the world's wealthiest nations per capita until the collapse of its banking sector in 2008, joining Albania, Armenia and Bosnia and Herzegovina ‘in a small band of European countries without a McDonald's’. Doing business in an island nation right on the edge of the Arctic Circle was always tough (most ingredients had to be imported a long way from Germany). But the collapse in 2008 of Iceland’s currency, the krona, led to a doubling in production costs for burgers, pushing the price of a Big Mac above the $5.75 it costs in Switzerland (home to the world's most expensive McDonald's, according to the ‘Big Mac Index’). McDonald’s left Iceland, thereby proving that globalisation also has a ‘reverse gear’. The gaps in the high street that they left behind were filled by new restaurants that use exclusively Icelandic food and ingredients. The ‘re-localisation’ of food in Iceland was an especially interesting geographical consequence of the global credit crunch.
‘McDonald’s to open first vegetarian outlets’ Financial Times 04 September 2012
‘McDonald's facing Hindu protests over restaurants near holy sites’ The Daily Telegraph 04 September 2012
‘McDonald’s sues over Milan eviction’ Financial Times 16 October 2012
‘I'm leaving it: McDonald's quits Rochdale's ailing town centre’ Guardian 25 November 2011
‘McDonald’s lures young Chinese workers’ Financial Times 20 May 2012
Big Mac Index
Written by Dr Simon Oakes, a teacher at Bancroft’s School (Essex) who is Chief Examiner for IB Diplomogramme geography.
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