#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and west of the country launched McCafés and new products, leaving Connaught’s northern and eastern restaurants with an outdated image and shrinking menu.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.
March 19, 2019 @ 11:09 pm
McDonalds in India is a very good example of the challenges of operating in an international market. It seems that McDonalds performed systematic planning and research in order to uncover consumer tastes and then to tailor their offerings to the local market. Even though they have been successful in their ability to produce a product that the meets the needs of the local market, McDonalds is still struggling in India due their business relationships in the area. Could they have done more preparation before entering into these business relationships? I wonder if there was any information available such as reputation or previous legal disputes that would have raised a red flag regarding Connaught Plaza’s ability to be a strong partner. McDonalds might be better off at this point by offering a price closer to the valuation in order to buy out Connaught Plaza. Their current approach of letting the brand image continue to be tarnished by mismanagement and unavailable items seems like it could be very detrimental to McDonalds presence in India in the long run.
March 26, 2019 @ 5:34 pm
I just finished writing a discussion board about why having trusted and mindful management is so vital when working internationally. And this statement should apply with partnerships as well. The problem with this case is customers are and will be left in the dark on this one unless they do their own research and digging. McDonald’s is probably one of the best operating companies internationally, if not the best and well experienced. They have a well seasoned management team that would not lead the franchise astray. Just like we have been learning in class, conducting more research and analytical data would have helped McDonald’s avoid this partnership all together.
April 7, 2019 @ 8:22 pm
McDonald’s troubles in India depict a common problem that many companies face when expanding internationally – selecting the right partner. Local partnerships are crucial to international expansion because a good partner understands the local market, including customer preferences, regulations, customs, and how to do business. In this case, McDonalds was using a franchising model and discovered one of their large partners were breaking contractual agreements. This may have been avoided if McDonald’s headquarters put more effort into managing the relationship, including checking in regularly, visiting local partners in person to discuss business plans, providing training, etc. If these measures to build a mutually-beneficial, understanding relationship were put in place, McDonald’s may not have needed to “order” their partner to stop using the brand immediately. This seems quite one-sided, and it maybe the local authorities agreed since the Indian tax authorities raided surrounding McDonald’s locations.
April 15, 2019 @ 9:17 pm
The growing Indian market is a great opportunity for a business expanding globally. It is great that McDonald’s did extensive research on Indian cuisine and was able to satisfy the tastes of the local communities. However, their conflict with local licensee Connaught Plaza Restaurants Pvt Ltd caused a lot of hardship during McDonald’s India expansion. Owner of Connaught Plaza, Vikram Bakshi wanted a fair price for his part in the operation in the North and East. McDonald’s was only offering him $5 to 7 million while Bakshi wanted $100 million. This led to McDonald’s pulling out its support and forcing Connaught into a difficult situation. Connaught, who offerings were shrinking along with their outdated McDonalds image were also being impacted by launch of McCafe in other regions. This conflict damage McDonald’s and their relationship with the licensee. It is a great example of the importance of partnerships and relationship evaluation. Going into business overseas with licensees can be a great strategy, but requires careful selection and analysis.
December 5, 2021 @ 9:46 pm
I think Mcdonald’s strategy when they entered India was on the right track. Using new ingredients in innovative ways to bring in local clientele is a brilliant strategy. I think their downfall was when they didn’t manage their relationships properly. If McDonald’s would have done regular quality control checks, done visits, they would have made sure that this contractual breach issue would not have occurred.
January 3, 2022 @ 6:52 pm
McDonalds seemed to have done everything right in the beginning by expanding into India. McDonalds did its research in local preferences in food and brand imaging before going into the Indian market. What they couldn’t account for was their partnership turning badly. Their main issues stemmed from conflict with their partnership of Connaught Plaza Restaurants. It is important when going international to research as well as manage relationships with partners. It also seems that there was another issue with the authorities siding with the Indian based Connaught Plaza Restaurants company and raiding Hardcastle’s offices. There is likely corruption within the government and Connaught which led to the offices being raided. It is important for companies to also understand the level of corruption in the companies that they do business as this is a risk that can happen. It is also important to understand the legal hold that a company has within a country and what that could mean if business goes sour.
January 21, 2022 @ 6:08 am
As McDonald method of entering into the Indian market, they decided to do a joint venture with Vikram Bakshi. As they were working and succeeding with another company to meet the needs of their local customers, they were losing the relationship with Vikram Bakshi. When a company that is entering into unfamiliar territory, it is important to maintain your relationship with those who helped you in the fist place. As their disagreement continued, it was getting harder for McDonalds to separate from Vikram Bakshi, and eventually one of them paid the consequences. Picking the right partners and developing long-term goals is important because as big of a company McDonalds is, they were faced with many issues small business might not be able to. Especially if you are starting internationally, you want to be able to trust those you make contracts with. If you are an American company going into a different country, you want to be able to adapt to their culture, habits, and needs because the customers are what keeps you in the market — no customers, no business. So adapting to what is around you and who you are marketing towards and being able to have a common ground with your international parter can be a game changer for the future.
February 17, 2022 @ 2:03 am
McDonald’s is one of the most successful companies internationally, as they have globalized their products and message transparently across diverse cultures. They have had great communication overall and hold the reputation of advanced experience in a global context. This fact raises concerns for their miscommunication and fallout in India with Connaught Plaza. Primarily, Mcdonald’s did a superb job of researching Indian cuisine favorites and creating their own version to integrate into the fast-food Indian marketplace. However, McDonald’s disconnection with one of its licensees in India left the north and east side of the continent without happy meals and out-of-date menu design/image. It’s very interesting how the fast-food chain fell through with their management and relationship in this example in India. I would presume that Mcdonald’s had done enough research in foreign partnerships to prevent this event from happening, especially since it slightly damaged their presence in India. It could potentially be on Connaught Plaza as well as maybe their ideals altered and no longer favored the systematic goals that McDonald’s religiously followed. I believe that this scenario demonstrates how important it is to continuously follow up with long-term partners and evaluate direction often in order to maintain growth from both sides. Things that should always be overanalyzed in international business transactions are parties’ boundaries, legal systems, and availability of resources. McDonald’s definitely presents corporate readiness through its size, age, experience, and mindset. However, this example demonstrates that they might need to reassess their International motivations and perform efficiently with their existing contracts abroad. Finally, I believe that Mcdonald’s could have had better corporate social responsibility while working with Connaught Plaza in India; the international party could have done a better job of communicating about the once mutual economic mission and protecting the McDonald’s consumer marketplace of northern and eastern India.
March 12, 2022 @ 7:26 am
McDonald’s does a great job in their global brand presence, as they cater to their local communities’ tastes. Based on the location, specific items are offered, adding cultural diversity on the menu as seen with India in the blog. However, it is clear that McDonald’s did not manage its partners properly, which seems to be a common problem companies face when expanding internationally. The main problem stemmed from one of their leading partners Connaught Plaza, breaking contractual agreements, which led to disagreements, making McDonald’s pay the consequences. This blog shows how important it is to carefully research your partners, pick and manage them, especially with big cultures. All this could have been avoided if they followed up with their partners and overall managed the relationship. McDonald’s is operating in a different culture than the US, so it’s crucial for them to research different partners, contracts, laws, and cultural barriers prior to going international, in order to avoid any problems. However, one thing they did do a good job at before entering the Indian market was researching the local taste preferences. Companies that are thinking of doing international business could learn from McDonald’s mistake, as international business is a long-term plan.