Saturday, October 13, 2012

McDonald’s and the great challenges it faces when entering Vietnam - News VietNamNet

VietNamNet Bridge – Experts believe that McDonald’s, though being a global well-known brand, will still face a lot of big changes in the Vietnamese market.



The presence of McDonald’s or the announcement of the fast food giant to land in a market always catches the special attention from the public.

The idea of penetrating the Vietnamese market has become more realistic when a high ranking manager of McDonald’s in late August arrived in Vietnam, where he had working sessions with some competent agencies. The purpose of the visit was reported as “seeking the business opportunities in the lucrative market.”

The fast food giant, who has been present in 119 countries all over the world, was thought to keep indifference to the Vietnamese market. While other big fast food franchisors, including KFC, Lotteria or Jolibee, have been in Vietnam for some years already, McDonald’s is still outside the market.

However, McDonald’s has unexpected released the plan to join the Vietnamese market, a part of its plan on quick business expanding towards Asia.

The economic crisis in Europe has badly affected the business growth of McDonald’s in the market which brings 40 percent of the total revenue. The traditional North American market, which makes up 30 percent of the total revenue, has also become saturated.

In fact, the board of directors of McDonald’s understands that it should not expect too much from the European or North American markets. Therefore, the giant believes that it needs to speed up the plan to go toward the east.

In the vast market of China, McDonald’s, with the network of 1100 shops, has to compete with KFC (YUM!), a redoubtable rival which has 3500 shops.

Though Kenneth Chan, Managing Director of McDonald’s China stated that the giant does not intend to compete in terms of the number of shops, but it strives to provide best quality products and best services, the hamburger giant understands that it needs to enlarge its network as soon as possible.

Therefore, besides the shops opened by the company itself, it has been also trying to expand the network under different modes – franchising, licensing and developmental licensing, hoping to obtain 2200 shops by the end of 2102.

What will challenge McDonald’s in Vietnam?

South East Asia, including Vietnam, has become a favorite market not only for McDonald’s, but also for other big names such as Burgerking, Wendy’s, Starbucks, Yum!, Subway.

However, experts can see great challenges McDonald’s would meet when joining the Vietnamese market. These might be also the reasons that explain why McDonald’s comes to Vietnam later than other fast food giants like KFC, Lotteria or Jolibee.

The challenges could be the material sources which still cannot satisfy the demand of the company, the special taste of Vietnamese consumers. McDonald’s might foresee that it would not only have to compete with the other fast food giants, but also with the take-away shops on pavements – the favorite style of Vietnamese people.

However, what the public expects to see is the pricing policy to be applied by McDonald’s in Vietnam.

The prices of Big Mac, one of the main products of the chain, is considered the index for McDonald’s to assess an economy. The Big Mac price in China is now the lowest among the company’s markets.

In general, in the first phase of operation, McDonald’s would target high income earners, and would target medium income clients later, when the network becomes large enough to cut costs. And experts believe that the same policy would be applied in Vietnam.

If McDonald’s plans to expand its network through franchising, very few Vietnamese partners would be able to cooperate with the giant, because very few investors can spend 800,000-1.3 million dollars to set up a shop with the brand. So this would be a great challenge for McDonald’s in implementing its plan to obtain 100 shops in Vietnam.

Another challenge would relate to French fries. The overly high import tariff on the products would badly affect the business efficiency. J. Simplot, an US agriculture expert, once noted that it would be very costly for the US fast food chains to maintain the typical characteristics of the US potatoes.


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