McDonald's faces both opportunities and threats in the Chinese market. Opportunities include growing incomes, partnerships with local governments, and expanding into rural areas. However, threats include rising costs, increased competition, health concerns, and environmental scrutiny. Under Porter's five forces, McDonald's has a strong position due to its scale but faces competition from local chains and substitute products seen as healthier. Supplier bargaining power is balanced by McDonald's size, but buyers have increasing power due to alternatives and purchasing power.

1. MCDONALD’S: IS CHINA
LOVING IT?

2. Opportunities:
•Growing income and purchasing power of Chinese .
•By building good relationships with local govt, by assisting the development of
local agriculture, McDs could guarantee the quality of raw ingredients.
•The liberalization of the franchising sector will help them to expand business more
confidently.
•Despite less individual wealth among customers in less developed regions of rural
China, McD’s China can still be profitable through large quantities of small
transactions and low cost items , given that more than 700 million people live in
less developed inland provinces. The earlier they enter this region, the more it will
enjoy first mover advantage.
•Westernization of youth and curiosity regarding the western culture.
•China, potentially the worl’d fastest growing major auto market, will stimulate sale
for McD’s drive through restaurants.
•Growing usage of internet and mobile devices in china create additional marketing
channels for the company to reach young consumers

3. •Threats:
•Rising food and fuel prices heighten the cost of production.
•There is increasing competition from both local and foreign restaurants.
•Awareness of health issues
•Growing social and environment concern of the public poses threat
and involves closer scrutiny from both local and international social
watchdogs.
•Rising inflation forced them to increase prices which raised consumers
concern.

4. Porter’s five forces
Threat of new entrants:
With Chinese people’s growing appetite for western food, China offers
great market potential for Western restaurants chains. However, new
market entrants will require a great deal of capital and resources if
they want to compete with McDonald’s .
Considering the scale of operations of McDonald’s in China, which
owns 800 stores , company enjoys economy of scale, making it difficult
for new entrants to compete. New entrants would also find it difficult
to establish network with local businesses and government agencies,
which are crucial to success in China. Therefore in view of McDonald’s
steady performance across China over the past years, the threat of
new entrants may not be particularly significant to McDonald’s in the
near future.

5. Porter’s five forces
Intense rivalry among Competitors:
The most significant competitive threat is from existing fast food
providers such as Burgerking, Wendy’s, KFC.
Existing home grown chains such as Malan Noodle, Dininag Dumpling
and YongHeKing may have less capital than McDonald’s but they could
raise funds through capital markets or venture capital , and can expand
rapidly.
With competition from local Chinese chains, McDonald’s is still able to
stay ahead of the competition with its strong financial background and
decades of management experience in the fast food industry.

6. Porter’s five forces
Threat of Substitute products:
Since many people tend to view food served at McDonald’s as
unhealthy due to high fat contents , they are likely to look for healthy
alternatives such as Subway which provides sandwiches and salads to
fill the niche of healthy fast food.
Further, many Chinese customers choose popular western chains as
places to meet their friends or take a break. So, western style coffee
chains such as Starbucks, which sells mainly beverages and a selection
of baked food items, are also likely to pose a threat of substitution to
McDonald’s.
McDonald’s also faces threat of substitution from the fast casual dining
restaurants e.g. Pizza Hut where customers have their orders brought
to them in an upscale atmosphere .

7. Porter’s five forces
Bargaining power of Suppliers
•As mentioned in the case, 95% of materials used by McDonald’s are
sourced from China.As a leading fast food chain with over 800 outlets
in China, McDonald’s has stronger bargaining power .
•To reduce political risks and to guarantee food supplies, they have
partnered with local state owned companies (such as companies
belonging to the department of agriculture in Beijing) that own wide
network of sources of food and have contacts in other governmental
agencies.
•With food prices rising, McDs can still enjoy economies of scale with
the large quantities of materials it orders from local suppliers, whereas
other smaller companies will bear much higher costs of production.

8. Porter’s five forces
Bargaining power of Buyers
•Chinese buyers, especially those in urban areas, exercise a great deal
of bargaining power due to growing purchasing power and the
prevalence of fast food restaurants and other dining locations in the
city.
•For less developed cities, McD’s prices are still higher than those of
home grown Chinese fast food restaurants. Consumers in these regions
may opt for cheaper alternatives unless they have strong loyalty to
McD’s .
•Health conscious customers may shift to other healthier options.
•Controversial issues surrounding McD’s China eg violation of minimum
wage law, having inconsistent standards for environmental and social
conduct globally and overcharging for its products in China may also
influence the purchase decisions of some potential buyers.