NATIONAL ECONOMICS UNIVERSITY

BUSINESS MANAGEMENT FACULTY

MCDONALD’S CORPORATION FRANCHISES

Topic: Outline the advantages and disadvantages of franchises and discuss

the opportunities for diversity in franchising and the challenges of
global franchising

Group number: Group 8

Class: Advanced Marketing Management 62D
Group members: 1. Ngo Duc Anh 11200182
2. Nguyen Khanh Chuc 11200660
3. Nguyen Lan Nhi 11202984
4. Ha Huy Quan 11206661

Ha Noi, October 2022

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 TABLE OF CONTENTS

1. Executive summary (Ha Huy Quan)......................................................................................................... 2

2. McDonald’s background (Nguyen Khanh Chuc)......................................................................................2

3. International Expansion through Franchising (Nguyen Khanh Chuc).....................................................3

3.1. Franchising.................................................................................................................................................3
3.2. McDonald’s franchising..............................................................................................................................3

4. Advantages of McDonalds’ Franchises (Ha Huy Quan)...........................................................................4

4.1. Management and marketing assistance......................................................................................................4
4.2. Personal ownership.....................................................................................................................................4
4.3. Nationally recognized name........................................................................................................................4
4.4. Well-tested operations.................................................................................................................................4
4.5. Lower failure rate........................................................................................................................................5

5. Disadvantages of McDonalds’ Franchises (Nguyen Khanh Chuc)............................................................5

5.1. Large start-up costs.....................................................................................................................................5
5.2. Share profit..................................................................................................................................................6
5.3. Slow payback period...................................................................................................................................6
5.4. Restrictions on selling.................................................................................................................................7

6. Opportunities for diversity in franchising (Nguyen Lan Nhi)...................................................................7

6.1. Providing a more foreseeable and conscientious stream of revenue..........................................................7
6.2. Escalating net revenue efficiently...............................................................................................................7
6.3. Increasing the opportunity to enhance the position....................................................................................7
6.4. Creating a standard system.........................................................................................................................8
6.5. Developing brand preference......................................................................................................................8

7. Challenges of global franchising (Ngo Duc Anh)......................................................................................8

7.1. Find the right partner..................................................................................................................................9
7.2. Hard to maintain.........................................................................................................................................9
7.3. Economic.....................................................................................................................................................9
7.4. Different franchise law in different countries...........................................................................................10

8. Conclusion (Ha Huy Quan)..................................................................................................................... 11

9. References............................................................................................................................................... 12

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 1. Executive summary (Ha Huy Quan)
To begin with, our team goes over some basic, general information about McDonald’s
and its franchising. Then, we will come to the analyzing section in which we conduct the
advantages and disadvantages of being a McDonald's franchisee. Lastly, we will show
some opportunities for diversity in franchising and challenges may be faced of global
franchising.
In the first part, it consists of the McDonald’s background - the Centralized, International
Company and how they expand their international business through franchising. 
In the second part, there are some benefits to being a McDonald's franchisee such as the
assistance in management and marketing, the personal ownership, well-known name,
low-failure rate. However, it still has some drawbacks in terms of the cost, the profit, the
payback period, and the restrictions.
In the last part, some opportunities and challenges will be provided. In terms of
opportunities, it will be a more thuthworthy revenue, higher earnings, higher brand
position, standard system and developing brand preference. On the other  hand,
McDonald’s franchise still has to deal with a few obstacles - the right partner finding,
quality maintenance, local economy, local fast food chains and local law.

2. McDonald’s background (Nguyen Khanh Chuc)

The first McDonald’s restaurant was opened in 1940 by brothers Maurice (“Mac”) and
Richard McDonald in San Bernardino, California. McDonald's Corporation is a
"Centralized, International company" that competes in the fast food market by delivering
hamburgers, french fries, and other consumable products with the driving force being
standardization, heavy expansion, and branding. McDonald's Corporation now is the
world's largest fast food service and supplier, with operations in over 118 countries and
over 40,000 outlets worldwide. To serve all of their customers and demonstrate the
incredible size of the company, McDonald’s has more than two million employees and
serves more than ninety-six percent of the world’s population at least once a year.
Throughout its history, the company has relied on four primary concepts to rapidly
expand, increase sales, and maintain market leadership. McDonald's has not only
emerged as the world's leader, but has also changed the way the world eats by using its
tremendous cash flow, brand strength, real estate, and customer spending patterns.

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McDonald's used three key techniques to expand rapidly into foreign countries:
franchising, company-owned restaurants, and joint ventures. With franchising agreements
accounting for the bulk of overseas locations, McDonald's management depended on this
strategy to help in the acceptability of a new way of eating into unfamiliar areas.
Franchises continue to contribute significantly to McDonald's international success, with
lowest risk and maximum benefit.
McDonald's has developed at an astonishing rate from its first restaurant operations in the
early 1950s, according to a corporate philosophy of "expand at all costs." This ideology
implies opening as many stores as possible as quickly as possible. At the peak of the
company's expansion, a new McDonald's store opened every four hours, 365 days a year.
Management promoted the belief that as more restaurant locations opened, more
customers would be serviced, resulting in increased profits earned across the board. This
aggressive expansion strategy has been a success from the start, both in the domestic and
international markets. However, recently, there have been difficulties with saturation
developing across the world, which have had an influence on sales, as will be explored
later in the paper.

3. International Expansion through Franchising (Nguyen Khanh Chuc)

3.1. Franchising
The fast food sector, and specifically McDonald's, transformed franchising into a
business model that would transform the global retail economy. The goal of two parties
to gain money while minimizing risk is at the basis of a franchise agreement. The
franchisee aims to grow an established firm without investing its own money. The
franchisee wants to operate a firm without going it alone and staking everything on a new
idea. One company offers a brand, a business strategy, knowledge, and access to
equipment and supplies. The other provides money and does the task.

3.2. McDonald’s franchising

The idea of franchising was not a new one to McDonald’s. McDonald's wants an
international reach without the enormous risk of entering new nations and changing
eating patterns. McDonald's recognized that entering overseas markets would be
challenging for an American fast food corporation and that it would require the assistance

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of local partners to smooth the transition. That is exactly what franchising enabled
McDonald's to do. Currently, 93% of all McDonald’s restaurants across the globe are
franchised. 

4. Advantages of McDonalds’ Franchises (Ha Huy Quan)

Because of the fame of Mcdonald, if a individual want to establish a McDonald store
through franchising, he/she can take some advantage of it such as:

4.1. Management and marketing assistance

When an individual takes over a franchise of McDonald's, he/she will get all the
assistance of one of the biggest franchise companies in the world. They can help with the
operations, training, advertising, marketing, human resources, real estate, construction,
purchasing, and equipment purchasing and maintenance. As a support of McDonald’s, all
new franchisees and managers of them are sent to Hamburger University in Oak Brook,
Illinois, as well as six additional campuses across the world to learn how to operate a
business.

4.2. Personal ownership

A franchise operation is still your firm, and you receive the same benefits and profits as
any lone entrepreneur. However, you still have to follow some regulations of
McDonald's. McDonald’s has said: “you are in business for yourself, but not by
yourself”.

4.3. Nationally recognized name

McDonald's has been there since 1955, and with franchises all over the world, it's safe to
assume that there aren't many people who haven't heard of the company or recognize the
Golden Arches emblem. McDonald's is not just well-established, but it already has
millions of consumers who are brand loyal and identify McDonald's with a quick lunch or
a family gathering dinner, for example. As the Bob Brooke Communications website
notes, the potential for the franchisee to tap into brand recognition and consumer loyalty
are significant benefits of this type of franchise.

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 4.4. Well-tested operations
Purchasing a McDonald's franchise provides a franchisee with more than just a brand
name. In addition, the purchase includes a complete system of processes and procedures.
According to the McDonald's website, all McDonald's locations serve the same menu.
This implies that the same methods may be used in each branch, allowing workers to be
educated quickly and simply in the cooking phases of each product, for example. Aside
from that, this fixed menu is appealing since it reduces the need for franchisees to invest
time and money in testing new product concepts. There are already successful products in
place.

4.5. Lower failure rate

The truth of launching any business, especially a restaurant, is that it may not succeed.
According to the Bob Brooke Communications website, 90 percent of new firms fail
during the first five years. So, rather than going it alone with an untested idea and a name
no one has ever heard of, many company start-ups turn to McDonald's because it is a
safer bet. As the Franchise Opportunities website explains, when company owners think
of a name like McDonald's, they envision success. Also, according to Rushonbusiness,
McDonald’s is one of the top 500 lowest risk franchise companies.

5. Disadvantages of McDonalds’ Franchises (Nguyen Khanh Chuc)

Although owning a McDonalds’ franchise restaurant offers a lot of benefits for
franchisees, there are also several drawbacks that they need to consider.

5.1. Large start-up costs

Buying a McDonald’s franchise takes a sizable investment. The corporation requires that
potential franchisees have a minimum of $500,000 of unencumbered liquid assets to even
be eligible and - if selected - be able to pay a $45,000 fee to the franchisor. The company
estimates that the overall initial investment needed to buy one of its franchises ranges
from $1,008,000 to $2,214,080. And because the training program franchise applicants
have to complete before they can purchase a restaurant can take up to two years.

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Moreover, Franchise operations are not cheap and owners will need enough capital to
cover the costs including rent, building maintenance, kitchen equipment, insurance,
uniforms, salaries, annual royalties and employee training.
Not only does it cost a lot to invest in a McDonalds restaurant, but it also takes a lot of
time and effort of the franchisee because of the requirements from McDonalds.

Requirements To Open A McDonald’s Franchise:

 Significant Business Experience: Individuals who have demonstrated successful

ownership or management of multiple business units or have managed multiple
departments.
 Rapid Growth: Individuals who possess the capability to grow rapidly with
McDonald's.
 Business Plan: The ability to develop and execute a business plan.
 Manage Finances Well: Ability to manage finances including a thorough
understanding of business financial statements.
 Good Management Skills: Commitment to personally manage the day-to-day
operations of the restaurant business.
 Training: Willingness to complete an extensive, comprehensive, world-class
training program at Hamburger University, and to spend 9-18 months working at a
restaurant near your home, to become proficient in all aspects of operating a
McDonald's restaurant business.
 Exceptional Customer Experience: The capability to effectively manage an
organization that recruits, trains, and motivates restaurant employees who deliver
exceptional customer experience.
 Good Credit History: Potential franchisee candidates must have an acceptable
credit history.

5.2. Share profit

McDonald's charges a $45,000 franchise fee and an ongoing monthly service fee equal to
4% of gross sales. Franchisees must also pay rent to the company, which is a percentage
of monthly sales. Franchisees pay an average of 10.7% of sales in rent costs, according to
the Service Employees International Union.

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 5.3. Slow payback period
With a huge initial investment, an average initial investment of about $1.8 million, it
would take 8.5 years or less to recoup the McDonald’s franchise cost with a 10% or more
profit margin. These figures are calculated from the 2020 average median net sales from a
McDonald’s franchise in the US, which is about $2.9 million. Meanwhile, about 2000
franchised outlets closed down over the last two years.

5.4. Restrictions on selling

A wide range of business types operate under the franchising model. Fast-food
franchises, in particular, may not always be the best choice for a franchise agreement.
McDonald's fast-food companies have been targeted in a battle against what has been
termed the obesity epidemic, casting McDonald's outlets - along with their owners - in a
highly negative light in the media and their communities. McDonald's and its peers
respond to this negativity by attempting to add healthy options to their menu, but the
stigma is likely to linger.

6. Opportunities for diversity in franchising (Nguyen Lan Nhi)

The company's long-term plan includes a shift to a more franchised business model.
Because the form of franchising business is a lot of opportunities for McDonald's

6.1. Providing a more foreseeable and conscientious stream of revenue

In contrast, franchisee rental and royalty revenue provides a more predictable and reliable
stream of revenue with much fewer operational expenses and risks. In some ways, it's as
if McDonald's is establishing a subscription business model in which franchisees pay a
set monthly fee. As a result, McDonald's income becomes more steady over time.

6.2. Escalating net revenue efficiently

Furthermore, the company's operations and net sales through franchising make it easier to
enhance earnings. Rent and royalties based on a percentage of sales, as well as minimum
rent payments and starting fees, account for the majority of McDonald's franchisee
earnings. Earn a steady, stable, even a lot of profit without spending effort, investment
capital or expanding production and business.

6.3. Increasing the opportunity to enhance the position

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Franchising also contributes to increasing the opportunity to enhance the position and
standing of McDonald's, creating a spread, wide coverage not only in the country but also
can expand abroad, the whole world. Earning profits while affirming and enhancing the
value of the franchisor in the market.

6.4. Creating a standard system 

The next opportunity of franchising in the McDonald's system is to shape a specification.
This included trademarks, logos, business slogans, and operating methods of the
franchisee. McDonald's will not only expand the market in major countries in Europe, but
also expand to Asian countries such as Korea, Japan, China, Vietnam.
6.5. Developing brand preference
Brands when entering foreign markets they have to learn about the culture there to
understand more and tailor their products to them. From there, it will create sympathy
and increase brand love in the hearts of customers. The most obvious example is the
McDonald's market in Vietnam. The big man in the fast food industry when entering
Vietnam must learn the culture of the Vietnamese people. Understanding that Vietnamese
people always have rice in every meal, McDonald's has added rice to the menu in the
Vietnamese market. This rice dish is only available on the menu in the Vietnamese
market.

For McDonald's franchisees:

 No need to spend time, money and effort to build a brand from scratch. When
being franchised, the franchisee only needs to do business in the name of
McDonald's and inherit the reputation of McDonald's.
 Products, services and the entire operating system are standardized from
McDonald's.
 Be trained and acquire business secrets, receive regular support from McDonald's.
 Having a cheap and secure supply of raw materials – one of the factors that
directly determines the profitability of the business.

7. Challenges of global franchising (Ngo Duc Anh)

You are forced to accept the condition that you only open one McDonald's at a certain
location, for a certain period of time, usually 20 years, and at the same time comply with
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the principles of store layout staff, recruitment staff… and all other factors, so that your
McDonald's store exudes the "aura" of a real McDonald's.
It is clear that upfront entry costs are a barrier to entry for many entrepreneurs who may
have limited access to capital. This barrier may be particularly felt by candidates from
different backgrounds, including historically underrepresented groups.

7.1. Find the right partner

Finding the right partner is the hardest thing for McDonald. Partner fit in this case refers
to cultural and personal fit, rather than being important when they sign a master franchise
agreement or a single franchise. The metrics are far from the actual results, franchising
often falls short of international growth targets. The majority of franchise systems did not
meet their development goals after entering the international market and failed because
the relationship with the local partner collapsed.
Every nation has a different fast food culture, therefore it was a challenge when
McDonald's sought to locate a partner or a truly acceptable country, it is vital to
understand carefully about customer behavior or taste in order to come up with
appropriate business ideas.

7.2. Hard to maintain 

To become a McDonald's franchisee, franchisees must complete a number of
requirements, including being taught by McDonald's for 9 months.... to assure the output
quality of each product. However, maintaining product quality does not guarantee
continued sales in all nations.
For example, McDonald's has closed more than 2,000 locations in the past 2 years in the
United States. According to Reader's Digest, the chain has dropped from 15,828
franchises in 2016 to 13,948 in 2018.
According to a 24/7 Wall Street analyst, the franchises are closing because the company's
management discourages "mother and child" businesses, so the number of customers is
decreasing year by year, especially in food services

7.3. Economic
Due to economic downturn sales might be exaggerated 
 There can be risk of currency, interest rate as well as exchange rates

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  Increasing material prices and labor cost in production countries can affect
McDonald 
 There  are  numerous variables,  which  can  influence the  operation  of an 
organization.  
 Example: In Pakistan McDonalds offer the sustenance at higher rates in contrast
with the neighborhood nourishment  eateries.  A large  portion  of  the general 
population  in  Pakistan fall  in  the classification of middle class and it is not
moderate for them to have McDonalds at standard premise. Because of cutbacks
and other financial downturn of the present retreat period the benefits of
McDonalds may have lessen as individuals consider it as an extravagance to go
and eat out at some outside QSR

7.4. Different franchise law in different countries

Laws vary from country to country on business operation and franchise licensing. 
Example: 
 The disclosure acknowledgment and “cooling off” periods are longer in Australia
than the US.
 Brazil requires the Franchise Agreement be translated into Portuguese and
registered with the Brazilian Patent and Trade Office
 There are special stipulations about terminating the Franchise Agreement in
Mexico
 Spain imposes special registration laws applicable to franchises.
The trade associations report the existence of royalty taxes, contract law, and the lack of
specific franchise legislation as the major legal issues potential franchisors and
franchisees needed to be aware of. The existence of royalty taxes appears to be especially
prominent in North and South America and Asia. Value added taxes were especially
noted by South American and European nations. The existence of contract laws covering
franchising was particularly noted in Europe and Asia while the lack of specific
franchising legislation was noted by some European nations (e,g, Italy, Poland, UK) and
Egypt as an important legal/tax restriction facing franchisors in these countries. 
Some other country-specific legal factors favoring franchising include: 
 Franchise regulations and subsidiary liability laws in Russia

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 Legal exemptions granted to franchises in Turkey and funds to promote
franchising in Malaysia
Country - specific legal and tax issues restricting franchising include: 
 Tariffs in Guatemala and Peru
 The publicity (advertising) tax in Brazil;  
 Rules against foreign recruitment of franchises in China
 Signage laws in China 
 Sole supplier legislation in South Africa

8. Conclusion (Ha Huy Quan)

To sum up, McDonald's is a fast-food restaurant franchise with roughly 40,000 locations
in  118 countries, serving 43 million people daily with its own branded items. This is the
world's largest fast food restaurant chain. Richard and Maurice ("Mick & Mack")
McDonald established the firm in 1940. Ray Kroc purchased the cornerstone of today's
successful business from the McDonald brothers and built it into one of the world's most
successful fast food companies. 
Because of the long branding and international fame, being a McDonald’s franchisee may
bring a lot of benefits while it still has some restrictions that the franchisee will be forced
to follow. Also, in this report, our group has named some opportunities and challenges in
the global market for all the partners who want to be McDonald’s franchisees. Hence,
they can consider the trade-offs as well as get an overview of this franchise brand. In
addition, they can also know about the factors that they must pay attention to before
becoming a part of McDonald's.

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 9. References
1. McDonald’s Corporation Website
<corporate.mcdonalds.com>
2. Abby Mccain (2022), McDonald’s statistics [2022]: Restaurant counts, facts, and
trends.
<https://www.zippia.com/advice/mcdonalds-statistics/>
3. Akhilesh Ganti (2022), How McDonald's Makes Money
<https://www.liveabout.com/requirements-to-open-a-mcdonald-s-franchise-
1350970>
4. John Dudovskiy (2022), McDonald's Business Strategy and Competitive
Advantage
<https://research-methodology.net/mcdonalds-business-strategy/>
5. Jonathan Maze (2022), A lot of McDonald’s Franchisees left the system last year.
<https://www.restaurantbusinessonline.com/financing/lot-mcdonalds-franchisees-
left-system-last-year>
6. Don Daszkowski (2022), Requirements to Open a McDonald's Franchise
<https://www.liveabout.com/requirements-to-open-a-mcdonald-s-franchise-
1350970>
7. Rush Nigut (2019), Looking for a Franchise? Don’t Just Rely on the Franchise
500 and other Lists
<https://www.rushonbusiness.com/2019/07/articles/franchise-law/looking-for-a-
franchise-dont-just-relay-on-the-franchise-500-and-other-lists/> 
8. McDonald Business Model (2019)
<https://www.academia.edu/39799373/McDonald_s_Business_Model>
9. Advantages, Challenges of Franchising (2019)
<https://www.franchise.org/franchise-information/franchise-development/
advantages-challenges-of-franchising>

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10. Why did McDonald's close more than 2,000 locations in the US in the last 2 years?
(2022)
 < https://vi.alrm.pt/why-has-mcdonald-s-closed-over-2>
11. Dan Berthiaume (2022), Report: McDonald’s to promote diversity among
franchisees
<https://www.chainstoreage.com/report-mcdonalds-promote-diversity-among-
franchisees>
12. Rashad Yazdanifard (2015), Opportunities and Challenges in the World of
Retailing and the Importance of Adaptation to the New Markets
<https://citeseerx.ist.psu.edu/viewdoc/download?
doi=10.1.1.734.7572&rep=rep1&type=pdf >

Name Tasks

Ngo Duc Anh Challenges of global franchising

Nguyen Khanh Chuc McDonald’s background

International Expansion through Franchising

Disadvantages of McDonalds’ Franchises

Nguyen Lan Nhi Opportunities for diversity in franchising

Ha Huy Quan Executive summary

Advantages of McDonalds’ Franchises

Conclusion

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