Impact of MacDonald’s Company to Russia

Introduction

McDonald’s entrance into the Soviet Union took place after negotiations that lasted for 14 years (Humphrey, 1995). The negotiations took place during the Canadian Olympics. McDonald was able to gain entry as a Canadian corporation and not an American one due to political tensions that existed amongst the two countries during that time. Since then, McDonald’s has developed to become one of the leading multinational corporations.

The company operates in the food retailing industry; specializing in the preparation and sale of fast foods. The company was established when brothers Mac and Dick McDonald opened their first restaurant in California, the US in 1940. The company has since grown to become a global food service retailer with over 30, 000 restaurants based in over 100 countries worldwide. According to a McDonald Corporate report (McDonald Corporation, 2011), the food retailer can server about 52 million customers in a day.

McDonald’s has been able to embrace the globalization trend by designing its products and services to meet the demands of its local customers in different countries worldwide. Given that very few societies are immune to the effects of globalization, McDonald’s has impacted the political, cultural and economic landscapes of the various nations in which it operates; one of them being Russia. This paper explores that impact McDonald’s has had on the Russian economic, political and cultural life.

Neoliberalism

Neoliberalism has become a dominant force in the economic policymaking of various first world nations such as the US and UK (Kus, 2006). According to Kotz (2000), neoliberalism encompasses both economic theories and policy stances. The theory posits that a largely unregulated capitalist system not only represents free individual choice but also helps achieve maximum economic performance. Economic performance is maximized with regard to efficiency, technical advancement and distributional justice (Harvey, 2005).

Neoliberalism is, therefore, the motivating factor behind the emergence of multinational companies. According to Ionescu and Oprea (2008), these companies operate at the crossing point between production, international trade and foreign investments. Thus, the economic activities of multinational corporations foster economic globalization. Some of the factors that multinational corporations consider before deciding to set up operations in a country include:

• Market expansion
• Proximity to markets
• Need to decrease production costs.

Globalization

According to Kotz, globalization can be defined as; “the increase in the volume of cross-border economic interactions and resource flows” (p. 9, 2000). This increase which has brought about brings about a qualitative shift in the relations between national economies and nation-states, has enhanced and increased the growth of international trade. Globalization opens up business opportunities all over the world (Tomlinson, 1999). This can be attributed to the improved global transport network as well as technological inventions such as the Internet; which has enhanced communication. As a result, globalization has seen the proliferation of multinational corporations such as M. the corporations on their part have led to the adoption of foreign cultures by locals. In the case of M, Russians have been introduced to the fast food lifestyle that has its roots in the US.

Reasons for McDonald’s Early Success in Russia

The McDonald’s was able to stamp early success in the Russian market for a number of reasons. One of them being that the company entered into a 51 percent joint venture with the Moscow City Council. This move not only gave the company financial support but also made it look extra appealing to Muscovites. Another reason was that the Russian Government was very patronizing, and individuals who wished to visit the US had limited options. With the entrance of McDonald’s into the picture, these individuals saw an opportunity for a cheap and easy visit to the US.

Another reason for success is that other foreign multinational corporations did not trade in local currency. This is because the local currency was not easily convertible to foreign currencies. This proved quite challenging to both businesses and their customers, especially the low-income earners. To address this issue, McDonald’s stores only accepted Rubles. McDonald’s was able to overcome the difficulty in conversion by buying the local real estate. The rent from the properties was then charged on hard currency; which was used to import supplies that could not be obtained locally.

McDonald’s Impacts in Russia

Economic and Political Impact

Fast food consumers were used to substandard service before McDonald’s was established in the nation. For instance, customers could spend hours standing line waiting to be served by food vendors. This could be explained by the limited competition in the fast food industry since restaurants for low-income earners were rare (Samuel, Manhart, and Shrader, 2011). Naturally, McDonald’s superior customer care and friendly prices enabled it to register instant success.

Concerning wages, the average income level in the Soviet Union was considerably lower than that of a worker in the US. Therefore, the wages paid to McDonald’s workers in Russia were comparatively high. For this reason, workers employed in McDonald’s were content with what they were paid. This, coupled with the fact that each store McDonald’s opened created about 100 jobs, made the company popular among the Russian people (Tschoegl, 2007)

Other than from offering quality service and providing jobs, McDonald’s contributed significantly to the Russian food processing industry. For instance, infrastructure was not quite well developed. This compelled the company to build a food processing facility. The building of the facility necessitated the establishment of a comprehensive supplier network. According to Tschoegl (2007), McDonald’s supply chain alone led to the creation of approximately 100,000 jobs because of the company sources about 80 percent of its supplies locally. The food processing facility also led to the improvement of health and safety standards.

The Soviet Union was widely known for its communism structure. However, that has been significantly eroded as a consequence of globalization. McDonald’s has played a significant role in introducing capitalism to Russia. This can be evidenced by McDonald’s real estate venture that started in the early 1990’s. They used fast food sales to purchase farms and put among others; office towers, a factory and a distribution center. This came to be known as the McComplex.

As a result of these changes, many areas of government policies were modified so as to be in tune with the changes brought about by globalization. In another way, government changes were instituted to mitigate the negative consequences of globalization; especially in educational and training institutions. A good example is the negative impact of the American financial crisis.

In view of the above facts, it can be said that McDonald’s is more inclined towards localization as opposed to standardization, in terms of economy. This can be supported by various actions, one of them being that it is sourcing a large percentage of raw materials from the local country. Another factor that supports localization is that the company is that majority of the workers employed in any outlet come from the country itself; in this case Russia

Cultural Impact

McDonald’s has significantly changed the majority of Russians’ way of life; more especially those living in urban areas. For instance, before the introduction of the fast food lifestyle, most Russians preferred to eat at home. However, this has changed as it is observed that most Muscovites have given up this lifestyle. As a substitute to gathering in homes for meals, most people meet in McDonald’s for social and business purposes (Samuel, Manhart, and Shrader, 2011).

The company has also been able to influence Russian cuisine by introducing a number of food items that it serves in its other outlets across the world. To maintain its growth rate, McDonald’s initial mode of operation was to take its original recipe to other countries. Russia was not left behind as the company offered American foods at affordable prices. This was to appeal to the American Businessmen and Tourists who were initially the most frequent customers of its outlets. However, the company had to include the local recipe so as to appeal to locals. Nevertheless, the American foods introduced earlier were adopted by the Russian people. For instance, Krishnani (2004, p. 1) reports that:

McDonald’s initiated breakfast menu and stronger coffee at different locations in Moscow that enabled commuters who left early for work avoid traffic and eating out. McDonald’s has also implemented a concept restaurant within its McDonald’s restaurant known as McCafe which is separated from its main dining area and serves coffee, soft lights and desert menu. This concept of McCafe originated in Australia; the Russian officials say that McCafe has become a huge hit in locations where it had been implemented in Russia (Krishnani, 2004, p. 1).

McDonald’s was also able to influence the quality standards in the Russian fast food industry. Its outlets were noted for clean, streamlined and efficient operations. To be competitive, other fast food chains in Russia had to improve their standards so as not to lose the little market share they controlled. Consequently, this led to an overall improvement in the hygienic standards of fast food retailers.

In the initial stages, it seemed that standardization was a chief aim in McDonald’s overseas outlets. However, as seen in Russia, customers were not ready to adopt the foreign culture that easily. This is coupled with the prevailing anti-American sentiment during that the time. For this reason, sales were not as high as expected, prompting the company to change to a localization strategy. This can be evidenced by the inclusion of popular Russian cuisine to McDonald’s menu. For instance, the fast food retailer made their menu more appealing to the local masses by introducing cabbage pies, potato wedges and cherry pie (Krishnani, 2004).

Impact on Agriculture

Initially, when McDonald’s opened in Russia, most of the raw materials it required could not be obtained locally. Consequently, the raw materials were imported from overseas. However, since then this has changed and the company now obtains over 75 percent of its raw materials locally (Krishnani, 2004). Given McDonald’s a huge demand for some farm produce such as potatoes, most farmers have resorted to grow them to meet the company’s demand. The company has also set in place particular standards in regard to health and safety that the suppliers have to meet. As a result, McDonald’s has changed what is grown in Russia and how it is grown.

McDonald’s Home Country Effects on Host Country

McDonald’s is widely viewed as a symbol of the American culture; the fast food capitalist way of life associated with capitalism. Even though McDonald’s has tried to appeal to the Russian people by including the Russian Culture in its operations, it is evident that it has introduced the American lifestyle to Russia (Friedman, 1990). The company has been able to impact the culture of Russian people by popularising the fast food way of life; which was not originally popular before its arrival. It has also influenced the Russian cuisine by introducing foreign foods. Politically, McDonald’s together with other multinationals have strengthened Russia’s ties with foreign nations. This has led to the signing of treaties meant to enhance business among party nations.

The company has also been able to introduce the entrepreneurial culture to Russia. This has been achieved through the creation of franchises and establishment of supply networks. According to Tschoegl (2007), the company only grants franchise ownership to individuals who are able to make a down payment from personal resources and not loans or other non-personal sources. This move ensures that the franchise upholds quality standards in terms of service since any neglect will lead to loss of their investment. The company has also been able to foster the entrepreneurial culture by setting high standards which competitors have to work extremely hard to keep up with.

Conclusion

Neoliberalism and Globalization have helped to make the world a global village. This is best illustrated by multinational corporations such as McDonald’s. The company has grown to be the largest in the fast food retailing industry, providing services in about 117 countries worldwide. Russia provides a perfect example on how McDonald’s has been able to change the political, cultural, and economic landscape in countries where it offers its services. McDonald’s has been able to provide a source of employment to thousands of individuals in Russia by directly employing them in outlets and indirectly through the establishment of local supply chains. The company’s success can be attributed to its unique and customized approaches to each country. Therefore, it can be concluded that McDonald’s initial approach of standardization did not work well with locals leading to the adoption of the localisation approach to remain appealing.