Strategic Management

Assignment II
Case Analysis : Individual Assignment
To be submitted in soft copy (doc or pdf) format in HUB

Read the following cases and answer the questions given at the end comprehensively (it
should be analytical, linked to the theories/models of the course)

BE VERY SPECIFIC TO THE CASE ANALYSIS IN RELATION TO THE ISSUES AS LISTED OUT
ABOVE – HOWEVER YOUR MODE OF CASE ANALYSIS SHOULD NOT BE QUESTION-ANSWER
FORMAT FOR THE QUESTIONS AND ISSUES GIVEN ABOVE BUT SHOULD BE IN NARRATIVE
FORM WHICH WOULD COVER THE ABOVE STATED ISSUES

NO ASSIGNMENT SUBMITTED AFTER STIPUTATED DATE AND TIME SHALL BE

ENTERTAINED / ACCEPTED.

ANY FORM OF PLAGIARISM AND/OR CHEATING DURING TESTS/EXAMS/QUIZZES/CASE

SUBMISSIONS/PRESENTATIONS AND/OR ACTIONS AGAINST NORMS/RULES/ REGULATIONS
OF THE COLLEGE AND CLASS WOULD BE PENALIZED WITH NQ STATUS.

1. The filename of Doc or PDF format (preferred) should contain “MBA-SM-<Your Section>-<Your
Name>-Assmt I”
2. Submission Deadline: 5th Feb, Saturday (For both sections)
3. To be submitted in HUB

Submissions out of the format and out of the time (even by a minute) will not be
accepted

Case I: Cartoon Network - The Indian Experience: Cartoon Crazy Kids

(and Parents)

In March 2001, leading satellite television (TV) channel, Cartoon Network, held a cricket
tournament titled 'Toon Cricket 2001,' in Mumbai, India. In the tournament, famous cricket
players were to play against famous cartoon characters such as Scooby Doo, Tom, Jerry,
Fred Flintstone, Dee Dee, and Johnny Bravo. The tournament was a promotional exercise,
aimed at increasing the popularity of the channel and its cartoon characters. The match was
scheduled to begin at 2.30p.m, but the 35,000 plus capacity stadium was almost full by
1.30 p.m. with children and their parents.

By 2.30 p.m. the stadium was overflowing and many were waiting outside trying to enter
the stadium, leading to a stampede. As the organizers kept trying to manage the crowds,
they had to delay the match till 4.00 p.m. When the organizers announced the start of the
match, children and their parents went wild with excitement and broke the barricades to

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meet their favourite cartoon characters. When pleadings and requests failed to control the
crowd, the organizers had to threaten the children with the cancellation of the match to
send them back to their seats.

Even then, when the match began, a ring of people stayed on the field, surrounding the pitch,
obstructing the view of the people who returned to the stands. The organizers and the security
people were helpless, as they did not want to physically force the children off the field. By 5
p.m. many disappointed people left the stadium saying, "We can't see anything, what's the
point?" Observers remarked that judging by the number of people who were there in the first
place; the stadium was still probably full, even when half the crowd had left.

The crowd eventually settled down and the second half of the match went well. The cartoon
characters entertained and delighted the crowds with their antics. This overwhelming
response to the tournament was beyond even Cartoon Network's expectations. A stunned
looking Cartoon Network official said, "I've never seen so many kids!" Though it was not the
first time Cartoon Network had organized such a promotional event, they had never seen a
response like this, where cartoon crazy children and their parents had gone so 'completely
berserk.' Even the organizers were amazed at the popularity of Cartoon Network's characters.
What was remarkable about this response to the event was the fact that the channel had built
a huge viewership and brand loyalty in a short span of 5 years in the Indian satellite TV
market. Considering that most TV programs in India were based on family dramas, movies,
and sports, the success of a niche channel such as Cartoon Network was indeed remarkable.
Background Note
A cartoon literally means a drawing/sketch of a humorous situation, often accompanied by
a caption. In the late 19th century, cartoons portrayed political situations in a satirical
manner. During the late 1890s, cartoons took the shape of 'comics,' which were essentially
cartoons with a storyline. The first comic series that came in the form of a book was 'The
Funnies' in 1929. During the mid 1900s, comic book characters such as 'Superman,'
'Mickey Mouse,' 'Little Orphan Annie,' 'Dick Tracy,' 'Bizzaro,' 'Popeye,' 'Aquaman,' and
'Flash Gordon' gained popularity around the world.

Animated cartoons evolved during the early 1900s. 'Sinking of the Lusitania,' released in
1918, is considered by many to be the world's first animated feature film. By 1920, many
animation studios were established across the US and France. The most influential
animation studio in the world, Walt Disney1 (Disney), entered the market in 1928.
Disney's first venture was 'Streamboat Willie,' starring Mickey Mouse. Other leading
animation providers during the mid-1900s were Warner Bros. and MGM. Some of the
popular animation feature films of those times were 'Snow White and the Seven Dwarfs,'
'Pinocchio,' and 'The Jungle Book.'

Ollie Johnston, Frank Thomas, Eric Larson, Vladimir Tytla, Jay Ward, Bill Hanna and Joe
Barbera are some of the people who made noteworthy contribution to the evolution,

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advancement and popularity of cartoon/animation characters across the world. Cartoons were
introduced for the first time on TV in 1950 with Jay Ward's 'Crusader Rabbit' in the US.
However, the development of cartoons specifically for TV did not begin till the 1960s as
animated feature films ruled the market till then. However, with audiences preferring TV to
cinema houses, many cartoon studios had to close shop.2 This gave momentum to the
production of animated cartoons for TV.

Some of the best-known cartoon series were developed during the next two decades: 'Scooby
Doo,' 'The Flintstones,' 'The Jetsons,' 'The Speed Buggy,' and 'The Snorks.' The leading
producers were Hanna Barbara, Filmation and DIC. Meanwhile, TV extended its reach to all
corners of the world with the advent of satellite broadcasting technology during the mid-
1970s.
It now became possible for TV networks to show their programs all over the world. The
satellite TV industry soon established itself, reaching out to millions of subscribers all over
the world. By the 1980s, TV had established itself as an effective and powerful medium of
communication that had access to the drawing rooms of billions of households, and generated
huge revenues through advertisements. The intense competition between TV companies,
forced them to device new strategies to stay ahead. One such strategy was the development of
programs that targeted specific sections of the community.
A few television channels focused on the children's segment, and began developing
programs that would appeal to children. Since cartoons appeal to children across the world,
channels like Cartoon Network, Nickelodeon, and Fox kids were set up to leverage this
niche market.

Cartoon Network was first launched in the US in October 1992, by one of the world's
leading media companies, Turner Broadcasting System3 (TBS). The channel offered
animation programs from TBS's extensive library of more than 10,000 Warner Bros, MGM
and Hanna-Barbera cartoons.

Over the next few years, the channel was launched in Europe, Latin America and Asia
Pacific regions. Cartoon Network not only showed famous cartoons, but also original shows
developed in-house such as Mike, Lu & Og, Ed, Edd n Eddy, Johnny Bravo, The Powerpuff
Girls, Cartoon Cartoons and Dexter's Laboratory. These cartoons became extremely popular
across the world, making Cartoon Network one of the leading children's entertainment
channels during the 1990s.
In March 1998, Cartoon Network launched CartoonNetwork.com, a website offering cartoons
on the net. According to Nielsen Net Ratings, CartoonNetwork.com stood as one of the
world's top ten Websites, in terms of time spent on-site, during March 1998. Cartoon
Network had huge advertising and promotional agreements with leading companies such as
Reebok, McDonald's, Disney, and Nintendo.
According to Cartoon Network sources, in February 2001, the channels had a subscriber base
of over 75 million in 145 countries. Analysts attributed the success of Cartoon Network to its
appeal to the entire family, its original programming content and its advanced programming
technologies.

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Cartoon Network entered India in October 1995, sharing airtime with Turner Network
Television (TNT). While Cartoon Network was shown in the morning slot (5 a.m.-9 p.m.),
TNT showed classic Hollywood movies in the night slot (9 p.m-5 a.m.). In the late 1990s,
Turner Classic Movies (TCM) replaced TNT, though the content remained the same. As the
pioneer in the Indian cartoon and animation market, Cartoon Network quickly gained
popularity and a huge fan following in major metros.

Cartoon Network in India

Prior to Cartoon Network's entry, Indian TV viewers could see cartoons only during a few
time-slots on the state-owned Doordarshan and some other satellite TV channels. The
channel realized that it would have to build cartoon/animation viewership virtually from
scratch. In addition, it had the task of building its brand equity amidst the clutter of numerous
satellite TV channels.
However, as there were no established players, it was not very difficult for Cartoon Network
to get itself registered in the viewer's mind as a channel synonymous with cartoons.
Gradually, children across the country tuned in to the channel, and Cartoon Network
established itself as a major player in the Indian satellite TV market.
Soon, the globally popular cartoons became household names in the country. The entry of
other players into the market during the late 1990s resulted in intense competition. Kermit
and Nickelodeon, leading children's channels entered India in 1999 and soon garnered
impressive viewership figures. The Star, Zee, and SAB TV networks also started airing
cartoons during specific time-slots.
To succeed in this competitive environment, Cartoon Network worked out a broad strategy
that emphasized on 'localization' and marketing. It localized the content by dubbing its
cartoons in Hindi (January 1999) to appeal to the Hindi-speaking audiences.
The first dubbed program, 'Toon Tamasha,' was received very well. The channel then started
offering Hindi versions of various popular cartoons. By February 2000, Cartoon Network
was offering nine hours of Hindi programming every day. Taking its localization efforts
further, the channel introduced Tamil-dubbed shows in February 2000.
Kathy McClaure, Vice President Programming, Turner Network, Asia, said, "The bringing in
of Tamil-dubbed cartoons is to further reinforce Cartoon Network's commitment to bring
localized programming." Hindi and Tamil dubbing was done in collaboration with Indian TV
software production house UTV.
Some of the cartoon shows that were dubbed in Hindi and Tamil were Scooby Doo,
Flintstones, Swat Kats, The Mask, The Addam's Family, Johnny Quest and Captain Planet.
By mid- 2000, Cartoon Network reached an estimated 10 million homes in India, appealing
to children between 4 and 14 years.
To strengthen the Cartoon Network brand, the channel carried out a series of promotional
activities. In May 2000, it introduced the concept of 'Super-Size Cinema,' that premiered new
cartoon shows and involved children in various games.4 The first Super-Size Cinema in India
was the 'X-Treem Toon Challenge' show.
It was featured on a 35-foot inflated screen at Mumbai's Andheri Sports Complex. An
estimated 10,000 children attended this event. The challenges involved climbing a wall and

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rope ladders to climb up. Later on, Super-Size Cinema was offered in other cities like Delhi,
Mumbai, and Chennai.
Cartoon Network offered many other programs and contests that involved kids. Promotional
activities other than Super Size Cinema and the cricket tournament included:
 Dream Diwali – Prior to the festival of Diwali, Cartoon Network asked children to send
answers to some questions asked during cartoon shows. Based on these responses, the
channel sent popular cartoon characters to visit the houses of selected children.
 Cartoon Network Sound Machine – A team of cartoon characters visited various cities to
promote a 'dial-in' facility, at which children could telephone and leave their messages.
These messages were aired on Cartoon Network at a given date later on. Over 0.5 million
children participated in the event.
 Toon Hunt for Scooby Doo – Cartoon Network stopped showing shows involving one of
the most popular characters, Scooby Doo, for a certain period. This was followed by a
treasure hunt type of 'search campaign,' in which children were asked to search for
Scooby Doo.
 Save Dexter's Brain – The cartoon character, Dexter, disappears from the network on
account of amnesia. Children were asked to help restore Dexter's memory by talking to
him (an actor) and reminding him of people, incidents and things related to him.
Cartoon Network also focused on leveraging the latest technologies to offer quality and
innovative programming. Its website, cartoonnetworkindia.com, allowed children to
communicate with their favorite cartoon characters, premiered new cartoons, offered
downloadable games, Scrap Book, e-cards and a customized homepage.
In July 2001, on account of its growing popularity, Cartoon Network announced that it would
offer 24-hour non-stop service. According to industry sources, the 24-hour service was a part
of the channel's global strategic mission to place cartoons and animation in level with general
entertainment that appealed to both children and adults.
The 24-hour service introduced a new range of program franchises and many Cartoon
Network originals, Japanese animations and other acquired cartoon and animated shows.
New program franchises included Boomerang, Cartoon Cartoon Fridays, Toonami and Acme
Hour.
Acquired shows from other countries included Pokemon, Trouble Chocolate, Cardcaptor
Sakura, and GI Joe. The network also offered premier shows such as Samurai Jack, Sheep in
the Big City, The Powerpuff Girls, Time Squad, Courage the Cowardly Dog, Ed Edd & Eddy
and Mike Lu & Og. The channel also introduced locally made shows such as Pandavas The
Five Warriors.5
Interestingly, children were not the only ones who watched cartoons. According to Cartoon
Network sources, 30 to 40% of the channel's viewership constituted teenagers and adults.
Most of the people who logged in to www.cartoonnetworkindia.com were in the 14 to 18 age
group. This was not surprising as even globally, a significant portion of Cartoon Network's
audience consisted of adults. Thus, Cartoon Network launched 'Night Shift,' a time-slot to
satisfy the tastes of these viewers.
Commenting on this launch, Keith Crofford, Program Development Vice-President, Cartoon
Network, said, "A third of our audience has always been adults. This is a way to get more

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adult shows out there for this audience." According to analysts, the 'across age barriers'
appeal of Cartoon Network was the reason why it attracted non-traditional advertisers such as
BPL, Intel and the National Egg Coordination Committee.
Some of the other leading advertisers on the channel were Luxor, Archies Cards, Novartis,
Nestle, Pepsi, Coca-Cola, Parle, and Cadbury's. During May-July 2001, Cartoon Network
became the second most watched channel in Kid's Prime Time (4.00-8.00 p.m.), among 4-14
year-olds in the Cable and satellite (C&S) households.
By 2002, Cartoon Network was offering eight hours of Hindi programming on weekdays and
nine hours of the same on weekends. Apart from this, the channel was also offering a three-
and-a-half hour programming schedule in Tamil on weekdays.
The channel was considering offering programs in various other languages also. As a result
of the above initiatives, Cartoon Network emerged as the second most successful channel in
terms of audience share by mid 2002. This was a commendable achievement in view of the
fact that Cartoon Network was a pay channel, unlike Zee and Sony (Refer Table I). Also,
though exact figures were not available, the channel's advertising revenues reportedly grew at
40% for the calendar year 2000-01 and 47% for 2001-02.

TABLE I: AUDIENCE SHARE OF MAJOR TV NETWORKS AMONG C&S HOUSEHOLDS (in %)

Television Network/ Company Audience Share

Star Plus 11.7
Cartoon Network 7.4
Sony 5.1
Zee 3.8
Zee Cinema 2.9
Source: Business Line, June 27, 2002

By the beginning of the 21st century, the channel was being seen in 15 million homes. Its
ratings went up by 73% from April 2001 to April 2002, and its website attracted page views
of 5.5 million per month. Cartoon Network tied up with retailing major Weekender in late
2002. It was also reportedly looking for a partner for licensing and merchandising stationery.

All's Not Well in Toonland

Cartoon Network's Hindi and Tamil versions were criticized by some analysts and a section
of the audience. They were unhappy at being forced to listen to the localized versions of such
cartoon network programs. Initially these Hindi cartoons were offered only for a short time-
slot and there was a balanced mixture of the same cartoons offered in English and Hindi
languages, at different hours of the day. But gradually most of the cartoons were dubbed in
Hindi and they formed a major part of the network's programs.
According to many cartoon fans, characters like Bugs Bunny, Daffy Duck, Elmer Fudd,
Porky Pig, Tweety Bird, and Sylvester Cat were not even half as entertaining in the Hindi-
speaking versions as they were in the English versions. Many parents objected to dubbing in
local languages because they wanted their children to learn a few English words and phrases
through the medium of cartoons.

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In focus group discussions conducted by the Center for Advocacy and Research in early
2002, many parents voiced their concerns and objections about the Hindi versions because
their children were picking up inappropriate language from them. As a result, Cartoon
Network had to temporarily suspend all Hindi programming and conduct a 'Standards and
Practices' review.
Commenting on this, a Cartoon Network spokesperson said, "It has been our observation that
no real industry standard has been set for the quality of Hindi dubbed children's TV content.
We have also observed that what is considered acceptable language differs widely among the
small minority of parents supervising their children's TV viewing."
Following the review, Cartoon Network decided to use the lower end of the tolerance scale as
a new benchmark for measuring the quality of its Hindi content and also began to re-dub
shows that needed language corrections/improvements. The network restarted its Hindi
transmissions in May 2002.
A few industry observers remarked that in order to appeal to older viewers, Cartoon Network
had started offering more violence, horror and adventure-based programs. They feared that
such programs would have a negative effect on children. The channel was also criticized for
exploiting the pester power of children by airing advertisements that targeted children.
According to analysts, children play a major role in a family's purchasing decisions. As a
result, many companies developed advertisements that appealed to children, and persuaded
them to drag their parents to showrooms. The analysts remarked that it was unethical for
Cartoon Network to exploit the vulnerability of children.
The growing competition in the industry continued to pose a threat to Cartoon Network.
While Kermit and Nickolodeon offered a mix of action, adventure and game shows, movies,
serials, puppet and chat shows, apart from cartoons, Cartoon Network was completely based
on cartoon/animation shows.

Many analysts considered this restrictive programming a major threat to the channel's future
in India. Nickolodeon, which had associated itself with the Zee network, was reportedly
planning many new shows and promotional exercises similar to Cartoon Network's.
By mid-2002, its shows reached 9.8 million homes through its own channel, and around 30
million homes through its programs on Zee TV.
Another worrying issue was that Zee, which aired one-hour of Disney cartoons, reportedly
drew more revenues than Cartoon Network, largely because it was a free-to-air channel.
However, sources at the channel were confident of sustaining their leadership position in the
market on account of its first mover advantage, its rigorous promotional activities and, its
indigenization efforts. Ian Diamond, Senior Vice-President and General Manager, Turner
Entertainment Networks, Asia Pacific region, said, "It's now time to build on the growth, and
ensure that Cartoon Network 'fits in with local culture and sensibilities.'

Questions:

i. Elaborate on the history of the success of Cartoon Network. How has Cartoon
Network been able to run successfully in the Indian Television Market for so long?
Discuss the strategy used by Cartoon Network to capture the Indian Market.

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 ii. Despite the attractive strategy used by Cartoon Network in the Indian Market, most of
the people have criticized the approaches used by Cartoon Network. What were the
reasons for such criticism? Do you agree with such criticism? Express your view.
iii. Considering the growing number of competitors such as Nickelodeon, Disney
Channels, Nicktoons, how do you think should Cartoon Network cope with its
competitions. Provide recommendations to Cartoon Network on the competitive
strategies to be used in order to sustain its leadership position.

Case II - Beefing up the beefless Mac: McDonald’s Expansion Strategies

in India

Background

In March 2001, the McDonald’s Corporation’s Indian operation was at a critical juncture
in its evolution. Over the previous few months, the company had expanded its retail base
from Mumbai (10 outlets) and Delhi (14 outlets) to Bangalore (one outlet), Pune (one
outlet), Jaipur (one outlet) and the Delhi-Agra highway (one outlet). During 2001,
McDonald’s had plans to open 15 more outlets with one each in Ludhiana and
Ahmedabad (see Exhibit 1 for a brief profile of the different cities and Exhibit 2 for a
map showing their locations in India) and the rest in cities where it already had a
presence. By 2003, the company planned to increase the number of outlets to 80 and the
cumulative investment in India to more than Rs 10 billion. (The approximate exchange
rate in March 2001 was Rs 46.50 = US$1.) This would represent a threefold increase over
the cumulative investment until June 2000 (Rs 3.5 billion). Three other cities (Agra,
Baroda and Chandigarh) would also have at least one McDonald’s outlet by 2003.

The Indian venture had been operational for more than four years and had recorded
healthy growth but no profits. Commenting on the progress until that point in time,
Vikram Bakshi (McDonald’s partner in Delhi) said: ‘Our growth and expansion in India
over the last three years has definitely been very encouraging.’ Only a few months
previously, Amit Jatia (McDonald’s other partner in charge of the Mumbai outlets) had
said: ‘We are still to recover our investment. You need a very large base and break-even
is normally after seven to ten years.’ Despite the venture’s lack of profits, Jatia also
showed his enthusiasm for expansion when he said, ‘Having cracked the Indian market,
McDonald’s is ready to leverage its initial investments in infrastructure to rapidly
expand.’

Observers were wondering about the appropriateness of McDonald’s bold strategic move.
Was the additional investment wise, especially in view of the lack of profitability of the
existing operations? Since many of the new cities to be entered were less Westernised
than Mumbai or Delhi, many observers doubted whether the demand potential would be
sufficient to justify the economic operation of outlets. The cost and availability of prime
real estate in major Indian cities was another issue. Opening a new outlet required an
average investment of Rs 30 million. In Mumbai and Delhi, where prime real estate was
expensive, the investments could be higher. Finally, some analysts doubted whether
McDonald’s could afford to spend big amounts on advertising to create a strong brand-
name reputation if its outlet base and customer base remained relatively narrow.

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McDonald’s – the global fast-food powerhouse

McDonald’s is, by far, the world’s biggest marketer of fast food. In 2000, it operated
nearly 30000 restaurants and had 1.5 million people serving 45 million customers each
day in 120 countries. The company had built an impressive set of financial figures, with
US$40.2 billion in system-wide sales (out of which US$24.5 billion was accounted for by
franchised restaurants), US$21.7 billion in assets, US$3.3 billion in operating profits and
US$2 billion in net profits. (See Exhibit 3 for a geographic analysis of McDonald’s
operations.) It was also routinely cited by the business press as being a savvy marketer. In
June 1999, with a value of US$26.231 billion, the McDonald’s brand was rated as being
the eighth most valuable brand in the world, ahead of well-known brands such as Sony,
Nokia and Toyota.

McDonald’s has had a long history in Asia. It entered the Japanese market in 1971, which
was followed by entry into other newly industrialising economies (such as Singapore and
Hong Kong, among others) in Asia. Entry into China occurred only in 1990. McDonald’s
entered India in 1996. (See Exhibit 4 for McDonald’s start-up dates in East Asian and
South Asian countries.) The late entry could be attributed to several factors, such as the
fact that a significant percentage of India’s population is vegetarian, the limited
purchasing power of the population and the closed nature of the economy.

The Indian market

India is a vast subcontinent with an area one-quarter of that of the United States, and a
population almost four times that of the US, at about 950 million. The per capita GDP is
quite low, at US$390 in 1999. However, after adjusting for purchasing power parity,
India was ranked the fifth-largest economy in the world (ranking above France, Italy, the
UK and Russia) with the third- largest GDP in Asia in 1999. (See Exhibit 5 for income
distribution in India.) Among emerging economies, India is often considered second only
to China.

India’s economic diversity is matched by its social diversity. There are more than 20
major spoken languages and over 200 dialects. The Indian currency (Rupee) has its
denomination spelt out not only in English and Hindi, but also in 13 other languages.
About 50 per cent of the population is considered to be illiterate, and advertising reaches
them via billboards and audiovisual means. For national launches, at least eight languages
are used. In addition, the country faces a poor infrastructure with frequent power outages,
even in New Delhi (the capital city) and Bangalore (India’s Silicon Valley).

In terms of political system, India is a democracy. Since independence from the British in
1947, the economic system has historically been modelled on the socialist style. Under
this system, the government strictly controls the entry and exit of domestic as well as
multinational corporations (MNCs) into different sectors. MNCs also face a variety of
other restrictions. Since 1991, India has started deregulating the economy. However, the
socialist mind-set cannot be erased overnight. A Member of Parliament said of fast-food
chains such as McDonald’s and KFC, ‘We want computer chips and not potato chips.’

The country has a few anti-Western factions, which have opposed the entry of MNCs in
general. The mistrust of MNCs could be at least partially attributed to the fact that the
British rule of India was rooted in the entry of the British East India Company (for trading

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purposes) into the country. There are also several small but vocal groups of health
activists and environmentalists that are opposed specifically to the entry of fast-food
giants such as McDonald’s and KFC. When KFC opened its restaurant in Bangalore in
1995, local officials found that KFC had excessive levels of monosodium glutamate
(MSG) in its food and closed the outlet. The outlet soon reopened, however. Said
Vandana Shiva, a vocal exponent of environmental and animal welfare issues, in an audio
interview with McSpotlight,

The McDonald’s experience, which is really the experience of eating junk while
thinking you are in heaven, because of the golden arches, which is supposed I
guess to suggest that you enter heaven, and the clown Ronald McDonald, are
experiences that the majority of the Indian population would reject. I think our
people are too earthy. First of all, it would be too expensive for the ordinary
Indian – for the peasant, or the person in the slums. It’s an experience that a very
tiny elite would engage in, and most of that elite – which knows what good food is
all about – would not fall for it. McDonald’s is doing no good to people’s health,
and in a country like India where first of all, we are not a meat culture, and
therefore our systems are ill-adapted to meat in the first place, and where people
are poorer – shifting to a diet like this will have an enormous impact.

Since 1991, when the Indian economy began opening up to foreign investments, many
multinationals have rushed in – lured by the attraction of serving a large middle class,
estimated at 300 million. However, even some of the well-known global brands failed
with their initial strategies and were forced to reposition, including, in some cases, drastic
reduction of prices. Some multinationals (for example, Peugeot) even had to close shop.
Kellogg’s, which entered with high-priced cereals (several orders of magnitude more
expensive than a traditional Indian breakfast), faced a lack of demand. KFC initially
failed to realise that Indians were repulsed by chicken skin, which was vital for the
Colonel’s secret batter to stick. Thus, apart from a lack of understanding of the local
tastes, a combination of circumstances – including overestimation of the demand
potential, rosy assumptions about the dismantling of bureaucratic hurdles to doing
business, infrastructural inadequacies and, finally, inappropriate firm strategies (for
example, pricing) – led to many failures and disappointments.

McDonald’s entry strategy in India

McDonald’s India was incorporated as a wholly owned subsidiary in 1993. In April 1995,
the wholly owned subsidiary entered into two 50:50 joint ventures: with Connaught Plaza
Restaurants (Vikram Bakshi) to own and operate the Delhi Restaurants; and Hardcastle
Restaurants (Amit Jatia) to own and operate the Mumbai outlets.

Although McDonald’s had done product adaptation to suit local tastes and cultures in
several previous ventures, such as the Teriyaki Burger in Japan, rice dishes in Indonesia,
noodles in Manila and McLox Salmon sandwiches in Norway, the degree of adaptation
required in India was significantly greater. McDonald’s replaced its core product, the Big
Mac, with the Maharaja Mac. The latter had a mutton patty (instead of the beef patty in
the Big Mac), to avoid offending the sensibilities of Hindus (80 per cent of the
population), who consider killing cows as sacrilegious, and Muslims (12 per cent of the
population), for whom pork is taboo. In addition, since 40 per cent of the market is
estimated to be vegetarian, the menu included the McAloo Burger (based on potato), a

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special salad sandwich for vegetarians, and the McChicken kebab sandwich. It also
offered spicier sauces, such as McMasala and McImli (made from tamarind). Other
elements of the menu, such as chicken nuggets, fillet fish sandwiches, fries, sodas and
milkshakes, were in common with the rest of the McDonald’s system.

In 1998, McDonald’s India set up a menu development team to collect consumer

feedback. Subsequently, the team came up with its menu vision, and new products since
then have been based on this vision.

The adaptation of the strategy went well beyond the menu, encompassing many aspects of
the restaurant management system. Two different menu boards were displayed in each
restaurant – green for vegetarian products and purple for non-vegetarian products. Behind
the counter, restaurant kitchens had separate, dedicated preparation areas for the meat and
non-meat products. The kitchen crew (in charge of cooking) had different uniforms to
distinguish their roles and did not work at the vegetarian and non-vegetarian stations on
the same day, thus ensuring clear segregation. The wrapping of vegetarian and non-
vegetarian food took place separately. These extra steps were taken to assure Indian
customers of the wholesomeness of both products and their preparation. To convince
Indian customers that the company would not serve beef and would respect the culinary
habits of its clientele, McDonald’s printed brochures explaining all these steps and took
customers on kitchen tours.

McDonald’s positioned itself as a family restaurant. The average price of a ‘Combo’

meal, which included burger, fries and Coke, varied from Rs 76 for a vegetarian meal to
Rs 88 for a Maharaja Mac meal. This could be compared with KFC meal prices at Rs 59
(Crispy Burger, regular fries and large Pepsi) and Rs 79 (KFC Chicken, Colonel Burger
and regular Pepsi). McDonald’s Happy Meal, which included a complimentary toy, was
priced at Rs 46. The prices in India were lower than in Sri Lanka or Pakistan, and even
the price of the Maharaja Mac was 50 per cent less than an equivalent product in the
United States.

To fight its premium image among the public, the company undertook selective price
cutting and ran some periodic promotions. In February 1999, the company was offering
‘economeals’ for as low as Rs 29. The company reduced the price of vegetable nuggets
from Rs 29 to Rs 19 and that of its soft-serve ice-cream cone from Rs 16 to Rs 7.
Apparently, this still afforded McDonald’s a healthy margin (40 per cent for cones). As
Vikram Bakshi, explained, ‘I will never become unaffordable, as I will not then be able to
build up volumes.’ The lower price could be attributed to two factors: the pricing
strategies of MNC rivals as well as mid-range local restaurants, and the development of a
local (low-cost) supply chain.

McDonald’s pricing strategies, as well as special promotions, were influenced by rivals.

In February 1999, several competitors were running special promotions, with KFC
offering a meal inclusive of chicken, rice and gravy for Rs 39. For Rs 350, Pizza Hut was
offering a whole family meal, including two medium pizzas, bread and Pepsi. Wimpy’s
was offering mega meals at Rs 35. A typical vegetarian ‘set meal’, or ‘thali’ (which
included Indian breads, rice, vegetables and yogurt) at a mid-range restaurant cost around
Rs 50, which was considerably lower than a McDonald’s meal.

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Some analysts believed that that by introducing loss leaders (for example, cones),
McDonald’s wanted to highlight good value for all its products. Whether customers
attracted by special promotions pay repeat visits to McDonald’s remains to be seen.

In October 2000, the company introduced two new Indianised products to its menu – the
Chicken McGrill and the Veg Pizza McPuff. At that point in time, 75 per cent of the
menu in India was unique – that is, different from the rest of the McDonald’s system. The
Chicken McGrill had a grilled chicken patty topped with onions and mint sauce, to give it
an Indian flavour. The Veg Pizza was a takeoff on the popular Indian samosa (potato-
based curry puff) with differences in shape (rectangular) and stuffing (capsicum, onions
and Mozarella cheese with tomato sauce). In keeping with the low pricing strategy in
India, these items were priced at Rs 25 and Rs 16, respectively.

With its value pricing and localised menu, McDonald’s had attracted some loyal
customers. One such customer said, ‘A normal kebab, with all the trimmings, at a regular
restaurant would cost more than Rs 25 and if the new McGrill is giving us a similar
satisfaction with its mint chutney (sauce), then we’d rather eat in a lively McDonald’s
outlet than sitting in a cramped car on the road.’

Some elements of the promotional strategy remained the same as in other parts of the
world. One instance of this included the emphasis on attracting children. A Happy Meal
film was consistently shown on the Cartoon Network and the Zee (a local channel)
Disney Hour. McDonald’s also teamed up with Delhi Traffic Police and the Delhi Fire
Service to highlight safety issues, again trying to create goodwill among schoolchildren.
In October 1999, in conjunction with The Walt Disney Company and UNESCO,
McDonald’s launched a search for Millennium Dreamers. The program would bring
together 2 000 young people from around the globe who had made a positive and
significant impact on their communities. Based on the number of its outlets, India was
allocated two representatives.

By June 2000, the company had started rolling out its first national campaign, as it was
expanding beyond Mumbai and New Delhi. The campaign, budgeted at Rs 100 million,
was expected to highlight (in phased order) the brand (the experience that there is
something special about McDonald’s), food quality and variety. The company also ran
special promotions during festivals, and ‘vegetarian’ days, and was even developing
garlic- free sauces to bring in ‘hard-core’ vegetarian traffic.

In terms of the selection of cities, McDonald’s followed the same strategy in India as in
the rest of the world. Its initial focus on Mumbai and Delhi was driven by the following
factors: they were the two largest cities in India; their citizens enjoyed relatively high
income levels compared to the rest of the country; and they were exposed to foreign food
and culture. After establishing a presence in the leading cities, McDonald’s then moved to
smaller satellite towns near the metropolitan cities (for example, from Delhi to Gurgaon
and Noida, both suburbs of Delhi, and from Mumbai to Pune). McDonald’s often found
that there were positive spillover effects, in terms of its reputation, from the metropolitan
cities to the satellite towns. In Jaipur, the company was hoping to attract foreign tourists.

Developing the supply chain

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McDonald’s search for Indian suppliers started as early as 1991. Its initial challenge was
to develop local suppliers who could deliver quality raw materials, regularly and on
schedule. In the five-and-a-half years until start-up, McDonald’s spent as much as Rs 500
million (US$12.8 million) to set up a supply network, distribution centres and logistics
support. By mid-2000, some estimates placed the total investment in the supply chain at
almost Rs 3 billion. Local suppliers, distributors and joint venture partners and employees
had to match the restaurant chain’s quality and hygiene standards before they became part
of its system.

McDonald’s experience in identifying and cultivating the supplier of lettuce provided an

excellent illustration of the difficulties involved. In 1991, hardly any iceberg lettuce was
grown in India, except for a small quantity grown around Delhi during the winter months.
McDonald’s identified a lettuce supplier (Mangesh Kumar from Ootacamund in
Tamilnadu, a southern state) and helped him in a broad range of activities, from seed
selection to advice on farming practices. In the case of several other suppliers, such as
Cremica Industries which supplied the sesame seed buns, McDonald’s helped them to
gain access to foreign technology. In another instance, it encouraged Dynamix, the
supplier of cheese, to establish a program for milk procurement by investing in bulk milk
collection and chilling centres. This, in turn, led to higher milk yields and overall
collections, as well as to an improvement in milk quality. McDonald’s ended up with a
geographically diverse sourcing network, with buns coming from northern India, chicken
and cheese from western India, and lettuce and pickles from southern India. There were
as many as 40 suppliers in the company’s supply chain. (See Exhibit 6 for McDonald’s
supply chain.)

A dedicated distribution system was established to match the suppliers’ production and
delivery schedules with the restaurant’s needs. The first two centralised distribution
centres were set up near Mumbai and at Cochin (in the southernmost part of India) in
joint ventures with two local retailers, both of whom had to learn from international
distributors of McDonald’s products how the restaurant chain handled distribution
worldwide and, especially, how to enhance the quality of storage operations. The
company estimated that each distribution centre could service about 25 outlets.
McDonald’s strove to keep the storage volumes of products high in order to exploit all
possible economies of scale. The distribution centres were also expected to maintain
inventory records and to interact with suppliers and the logistics firm to ensure that their
freezers were well stocked. Said Amit Jatia, ‘The most important part of our operations
was the development of a cold chain [the process of procurement, warehousing,
transportation and retailing of food products under controlled temperatures]. There is
practically no need for a knife in any restaurant. All the chopping and food processing is
done in the plants. Only the actual cooking takes place in the restaurants.’

Even with the suppliers and distribution system in place, McDonald’s needed a
distribution link to move raw materials to its restaurants. Logistics management was
contracted out to AFL Logistics – itself a 50:50 joint venture between Air Freight (a
Mumbai-based firm) and FX Coughlin of the United States, McDonald’s international
logistics provider. AFL logistics was responsible for the temperature-controlled
movement of all products (by rail, road or air, as appropriate) from individual suppliers to
the regional distribution centres.

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McDonald’s had to work extremely hard at inculcating a service orientation in its
employees, especially those involved in physical logistics, since the freshness of the food
was at stake. The truck operators had to be explicitly and clearly instructed not to switch
off the truck’s refrigeration system to save on fuel or electricity. The corporation went to
the extent of installing trapping devices, which would show the temperature chart through
the entire journey.

Since 1999, McDonald’s had started using India as an export base for cheese, lettuce and
other products that went into its burgers. Exports had already begun to Sri Lanka, where it
had opened in October 1998, and trial shipments had commenced to Hong Kong and the
Middle East. Said Amit Jatia, ‘Things are becoming global in nature. Once you set up a
supply chain in a strategic location, it can service other countries as well.’

Past performance and planned strategies

During its first 12 months of operations, McDonald’s opened seven outlets (four in Delhi
and three in Mumbai), had 6 million customer visits and served 350 000 Maharaja Macs.
By the end of 1998, the number of outlets had gone up to 14, and, by mid-2000, it had
expanded to 25 outlets with an outlet in Pune and Jaipur. The estimates for average daily
customer visits to a McDonald’s outlet differed widely. According to a mid-range
estimate (conservative estimates were half as much, whereas generous estimates could be
about 40 per cent higher), in June 2000, McDonald’s outlets were doing (on average)
about 1 500 transactions (or bills raised) a day, serving over 3 500 visitors. This was a
significant improvement over 1998 when a typical McDonald’s restaurant was doing only
900 transactions per day (according to the same source). Industry sources, however, were
in agreement that the spending per customer visit at McDonald’s was around Rs 45.

The growth rate in McDonald’s sales had been 70 per cent over the previous two years
(1998–2000) and was expected to be sustained until 2002. This growth rate included the
effect of starting up new outlets. Even with this growth, analysts were expecting that the
Indian operation would take three to four more years to break even overall. This was
attributable to the heavy investments made in vendor development, infrastructure and
brand building.

One gratifying aspect of McDonald’s success was the fact that, by mid-2000, it derived as
much as 50 per cent of its revenues from vegetable food items, thus disproving its critics
– especially those who were sceptical of its ability to serve food that suited Indian palates.
In 1997, customers rated McDonald’s food as bland. By September 2000, the perception
had changed, however. Customers thought that McDonald’s food had a unique taste.

To exploit the opportunities created due to its better brand awareness and customer
acceptance, McDonald’s was following a three-pronged strategy: increase the seating
capacity in existing outlets to cater to additional traffic; open new outlets in Mumbai and
Delhi; and, finally, penetrate new cities.

McDonald’s was also in talks with Delhi Metro Rail Corporation, Airports Authority of
India, Indian Railways and Delhi Development Authority to open smaller McDonald’s
outlets in airports and railway stations, among others. The investments required to open
these smaller outlets were only half that of the regular outlets.

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High real estate prices were a thorny issue in nationwide expansion. In metropolitan cities
such as Mumbai, prime real estate was extremely expensive and sometimes not available
at all. The costs were also high in other cities such as Bangalore. ‘Our expansion plans are
always relative to the availability of real estate, Bakshi said.

McDonald’s also had plans to set up several outlets along the Delhi-Agra national
highway in a tie-up with a major petroleum refining and marketing organisation, Bharat
Petroleum Corporation Limited. Jatia said, ‘We feel both local tourists and foreigners
travelling by road don’t have many reliable eating options right now.’ The first such
outlet, a project estimated at Rs 35 million, was already in operation. The company
proposed to offer highway travellers parking space and a play area for children. The
emphasis on quality, service, cleanliness and value (QSCV) had been quite successful in
drawing highway travellers in its home market (the United States). Some analysts,
however, believed that highway travellers in India, who were typically truck and bus
drivers, would not be willing to go in for the type of food or prices that McDonald’s
currently offered. In addition, McDonald’s was looking at tie-ups with other oil
companies, as well as retail vehicles such as malls, multiplexes or cinema halls.

Question:

Critically analyze the Corporate Strategies used by McDonald at different phases of the
growth in establishing their business in India. Include the following discussions in your
analysis:

 The growth strategy options identified, evaluated and adopted by McDonald

 Critical analysis of the appropriateness of the strategy adopted
 Core operational performance objectives of McDonald that supports the corporate
strategy
 Alternate strategies McDonald should consider
 Key success factors for McDonald in India for achieving managed and successful
growth
 Critical evaluation of McDonald’s future planned strategies

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