INTRODUCTION

          McDonald known as globalization corporation because it located in 119 countries and operates over 34,000 restaurants which operated by either a franchise or the corporation itself. Most of the McDonald's restaurants offer both counter service and drive-through service that let people drive through to order and get their stuffs. Basically, McDonald’s sells variety of burgers, milkshake, French fries and sometimes new menu will be provided in different country, for example Double Prosperity Burger while Chinese New Year in Malaysia. Before opening franchise in a new country, McDonald’s should make survey to know about the culture of the country. For example, Malaysia is an Islamic country, the franchise that open in the country must provide “halal” food.

           Besides that, since the corporation was operating, McDonald’s had won a lot of award. For example in 2013, they won 7^th in the Best Global Brand and 8^th in the Best Company for Leadership. Although they are one of the largest fast-food company in the world, but they do charity work annually which called McHappy Day.

HISTORICAL BACKGROUND

          The McDonald's Corporation is one of the well-known brands worldwide and leading restaurant chains in the world, serving around 68 million customers daily in 119 countries.  In 1940, Dick and Mac McDonald opened Bar-B-Q restaurant in San Bernardino, California. In 1948, two of them closed for three months for alternation and reopened the restaurant as a self-service drive-in restaurant, which provides hamburgers, milkshakes and French fries only. The major revenue came from hamburgers that sold at a nominal price of 15 cents which they used assembled line principle to produce more hamburgers in a short time. In 1955, Ray Kroc opened his first restaurant in Des Plaines, Illinois that appointed by the two brothers in 1954 and the McDonald's Corporation was created. In July 2012, Thompson became President and CEO of the McDonald’s Corporation. He and his leadership team established three global growths, which is to optimize the menu, modernize the customer experience and broaden restaurant accessibility.

MARKET STRUCTURE

          McDonald’s considered as oligopoly. Oligopoly occurs only few industries in the market with a large scale such as KFC, Carl’s Junior and Wendy’s. There are many barriers of entry for a business into the hamburger industry and market. Interdependence is a key component of an oligopoly. If McDonald changes the price or advertising, the sales of KFC will be affect. McDonald might collude with KFC because they can act as monopoly to maximize profit. McDonald might also compete with their rivals to gain a bigger share of profits for themselves.

DEMAND AND SUPPLY

           The McDonald Corporation gets their supply from the company that cooperate since many years ago. McDonald’s is committed to supporting Australian producers and manufacturers and their first preference is always to get the source from Australia. There is approximately 94 per cent of their food and packaging needs have been manufactured in Australia. It wastes a lot of money on sending their stuffs to the franchise and there is a suggestion about McDonald’s could set up some factories in some countries but it is not functional because it is hard for McDonald’s to manage and maintain the quality. For example, McDonald’s get supply from Gaviña Gourmet Coffee since 25 years ago, beef from Lopez Foods, Chicken McNuggets from Keystone Foods and potatoes from 100 Circle Farms. If the inflation happens, the cost of production will rise and the supply curve will shift to the left, so McDonald will face shortage(table 1). To avoid this problem, McDonald should find the back up supplier who can supply the product immediately when they need it.

           

          The law of demand states that when the price of a good rises, the quantity demanded will fall. Assume that McDonalds rises up the price of Chicken burger from RM4 to RM6, the quantity demanded will decreases from 60 to 40(table 2).

          

 The demand of a product change is due to the factors:

         

          First, if the income of an individual increases, the ability of purchasing will increase, so the demand will increase. If the income decreases, the demand will decrease. For example, if a girl given RM 4 by her parent, she could only buy 1 McChicken burger; if her parent gives her RM8, she could buy two McChicken burger. Second, when a good can be replace with its substitutes, the price and the demand for another goods will increase. For example, the demand for McDonald higher than Carl’s Junior because the burger of McDonald cheaper than Carl’s Junior. Therefore, the demand for McDonald increases. Third, when a good is complement to another, when the price on one product falls, the demand for the complement product increases. For example, if the price of McChicken decreases, the demand of the complement product, which is Filet-O-Fish, will increases as well. Therefore, the demand of the complement product increases. Last, consumer preference also affects the demand for a product. For example, consumers nowadays start to eat healthier food will not choose to eat fast food, so the demand of McDonald will decreases.

ELASTICITY

          Price elasticity of demand is the responsiveness of quantity demanded to a change in price. McDonald’s considered as elastic demand. For example, McDonald’s release their set lunch on 12pm to 3pm. When demand is elastic, they sell the set lunch at a lower price, The change in quantity demanded has a bigger effect on total consumer expenditure than the change in price. When the price of the McChicken burger decreases from RM9.35 to RM 5.95 at lunch time, the quantity demanded will increase from 20 to 80.

           Income elasticity of demand means the responsiveness of demand to a change in consumer incomes. The higher income the individual gets, the more goods they will buy, but it is different for inferior goods. The food served in McDonald considered as inferior good. Once the individual have a higher income, they might choose the products with higher price. For example, the individual will choose to buy burger at Carl’s Junior, which sell at higher price but not at McDonald when they have higher income. Therefore, McDonald has negative income elasticity.

          Cross-price elasticity of demand states the responsiveness of demand for one good to a change in the price of another. If McDonald is a substitute for Carl’s Junior, McDonald’s price rise at 2 percent and Carl’s Junior ’s price rise at 8 percent, then the cross elasticity of demand for McDonald with the respect to Carl’s Junior would be:

                                                                  = 0.25

SHORT RUN AND LONG RUN

           McDonald is a firm that can be simultaneously in the long run and the short run. First, the long run can occupy a much shorter period than the short run. For example in McDonald, they can see the capital and the labor in a short run setting. They described long run as to establish a new McDonald's franchise, the franchise works with planners from corporate headquarters to estimate demand that will maximize profits for the firm. The planning stage is the long run. There is no hamburgers are being produced when people are planning until the capital is chosen and labor can be applied to its operation.

          The operation of the installed capacity takes place in the short run. A typical McDonalds can be planned, built, and ready for operation in a time of a few months, and operated for many years. Therefore, the short run operating period is a much longer period than the long run planning period. In fact, the better the long run planning decisions, the longer the short run will last.

       

   INDIRECT TAX

In Malaysia, government collects tax from the restaurants, which is ad valorem tax. Ad valorem tax is an indirect tax of a certain percentage of the price of the good. Most of the restaurants in Malaysia pass the responsibility to the customers include McDonald’s. For example, the customers who buy 9 pieces nuggets in McDonald should pay RM9.45 add 6% of the government tax(table 4).

                

The rise in price from multiplied P1 to P2 multiplied by the number of goods sold (Q2) is the amount of the tax passed on consumers and thus represents the consumers’ share of the tax. The P2-t to P1 multiplied by the Q2 is the producers’ share.

Therefore, the higher the government tax, the less elastic are demand and supply. The selling price of McDonald will raise more, and the customers’ share of tax will be larger.

ECONOMIES OF SCALE

           McDonald's trains management personal and tests new products through its company owned restaurants, but the company only make up 30% of McDonald's eateries. The other 70% of the establishments are franchise owned and this represents a significant cost savings.

McDonald's has been expanding globally for decades and has done so through its franchising operations only and brings out a significant source of revenue growth. In the United States, McDonald's has been driving growth through renovating its facilities, expanding menu options and extending store hours. In my opinion, this has been the direct result of the renovation the facilities of its restaurants, it draws new customers to cut costs of renovating the restaurant. The expanding of its menu options has also gone a long way in retaining regular customers during the declining period. 

          McDonald's economies of scale benefit the company in various ways in its international market. For example, McDonald produces a large quantity of a fixed menu to lower the production costs and the company's bargaining power with its suppliers to lower its input costs.

CONCLUSION

           McDonald’s is a well-known fast food company in the world. It is not easy to maintain a good company and push the company to the globalization. In order to reach the target to be the largest and famous fast food company in the world, McDonald’s should improve their quality of service, management of the franchise and also manage the cleanliness of the franchise to give a good impression to the customer. They also might high up their percentage of the customer spend at there next time.

REFERENCE:

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Tai Evonne (2013) The Demand Of McDonald's In Malaysia

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McDonald's (2011) Wikipedia [online]. 23 October 2013. Available from: http://en.wikipedia.org/wiki/McDonald%27s  [Accessed 25 October 2013].

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i'm lovin' it! McDonald's® Malaysia(2004-2011) About us. Available from: http://www.mcdonalds.com.my/abtus/abtus.asp

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