#140 McDonald’s Indian Woes
With almost 500 stores, India is an important foreign market to McDonald’s. Not too long ago, it was praised in India for its responsiveness to Indian tastes. After having had items such as the Maharaja Mac and the Aloo-Tikki Burger on its menus in India since the 1990s, the fast-food giant added more offerings to woo Indians such as the Masala Dosa Brioche, the Chatpata-Naan, and several rice bowls. McDonald’s has also made items healthier by making some items free of preservatives and by reducing sodium and fat content in many others. So, all is peachy, right? Well, except it isn’t.
In 2017, McDonald’s ordered one of its two licensees in India, Connaught Plaza Restaurants Pvt. Ltd., to stop using its brand. McDonald accused its partner of breaking contractual agreements on financial management, internal controls and royalties. The owner of Connaught Plaza, Vikram Bakshi, outright refused, demanding a fair price for his half of the joint venture that operates 166 outlets in the north and east. McDonald’s had offered him a meagre $5 to 7 million but Bakshi demanded $100 million based on a valuation by firm Grant Thornton of $331million. Next, McDonald’s turned on the heat and informed its suppliers of the separation, causing Connaught to struggle and slip even deeper into the non-compliance swamp. In the meanwhile, Hardcastle Restaurants Pvt. Ltd., McDonald’s other partner which runs more than 270 McDonald’s restaurants in the south and west of the country launched McCafés and new products, leaving Connaught’s northern and eastern restaurants with an outdated image and shrinking menu. Soon, Happy Meals were gone in the north and east, and other menu items were unavailable. Already involved in the ugly breakup with Connaught, McDonald’s was dealt another blow. The Indian tax authorities recently raided the offices of 20 locations connected to Hardcastle. Could it be a coincidence that these recent developments are concentrated in the south and west, outside of Connaught’s territory?
The struggles of McDonald’s in India are just another example that demonstrates how important careful partner selection, developing shared long-term visions in license, franchise, or joint-venture arrangements, and well-executed relationship management are in international contexts, especially when the cultural distance between the principal’s home culture and the host culture is as large as between the US and India. Partners in global business – can’t live with them, can’t live without them…
July 6, 2018 @ 10:04 am
I think on the first glance, Mc Donald´s did a good job trying to understand the market and showing a responsiveness to the Indian taste but nevertheless, this example shows quite perfect that it’s not just about trying to be and taking care about the visible.
It’s more about really working hand in hand with the partner, taking time to find the right one, be careful with choosing and build a strong relationship.
In my opinion the most important thing, especially when it comes to a large culture distance, is to build a strong basis for the business, which means to make as much research as needed and take as much time as needed to find the right partner and to set the right contract and make sure that culture barriers, language barriers or just behavior patterns are clarified.
July 14, 2018 @ 5:17 am
The mode of entry into the international market is an important part and McDonald’s opt for joint-venture while entering in India. It was equally owned venture with the Vikram Bakshi. In 2017, McDonald’s broke up with Vikram Bakshi who their partner since was 1996. The reason behind this was that McDonald’s claimed that the Bakshi had terminated the contract as he violated certain essential obligations and default in paying of the royalties. Adaptation is necessary while entering to a particular market and there is a lot difference in the culture of USA and India, which McDonald’s tried to minimize by introducing various new items into the menu to win over the Indian customers and it did. But, on the other part, when you are such a successful brand in the domestic market and also in the international market, you should make decisions properly as it can affect the brand image in future. By closing number of stores in India, it affected the image of McDonald’s in North and East. By withdrawing the items from the menu and blocking the supply has affected the customer base there. About the introduction of the McCafé’s and other items in the South and West part of the country is not coincidence as per my point of view. McDonald’s withdrawal from North and East side was temporary unless they found new partner and they just don’t want to reduce the profits in Indian market and also the customer base. So, development in the South and West was intentionally. Adding to this, a company should be very careful while choosing a partner because when you enter a market your plans are long-term and for the further expansion and once a company involved into legal issues or termination of contract, it is very difficult to stand back in that market and earn the customers again.
July 15, 2018 @ 10:31 am
In order to find the right partner for the franchise, it is necessary to find out about it in advance. First and foremost, it is important to know whether he has the necessary business corrections at all. In addition, one should inquire about the image and liquidity of the franchisee. Large companies in particular, such as McDonalds, should make use of experienced franchisees. Franchise companies will only function in the long run if a well-founded, market-tested business concept exists in which a clear distribution of tasks between the two partners has been defined. In addition, trust, openness and a balanced balance of power are particularly important for building a long-term business relationship.
September 30, 2018 @ 7:25 pm
It would appear that while McDonald’s was eager to end the relationship with Connaught Plaza due to violations of the contract, their actions of notifying distributors of the dissolution of the partnership hurt the brand in the process. Customers won’t understand the dynamics happening behind the scenes, rather they might expect that regardless of the McDonald’s location, they might be hard pressed to purchase the product they expect to find, such as the trademark Happy Meal. McDonald’s was ranked as the number one franchisor in 2017 with 36,260 franchises worldwide. This company is savvy at operating in a global context. Given their experience, I am surprised they would risk damaging the brand by further compromising their retail shops in the northern and eastern parts of India rather than refocus efforts towards negotiating a settlement agreement that benefited both parties. As you suggest, McDonald’s is operating in a culture that is very different from the U.S. Their actions indicate that they may not adequately understand the relationships or legal influence Connaught Plaza holds in India in consideration of the timing of the raiding of Hardcastle’s 20 offices. It would be in McDonald’s best interest to conduct additional research on their partner before taking further action.