Business a cross-border is one of the common phenomena that is defining the global business space. Most multinational organizations have endeavored in either creating new branches or expanding operations in different nations in a bid to increase their market niche. Mostly, with the increased market niche both locally and globally, organizations can make gains and thus consequent stability within the competitive edge. This essay seeks to explore the market entry needs for Mac Donald’s in Hungary. Consideration of establishing a new branch in the country will be the main focus. This implies that some factors for new entry will be considered. Some of these factors include cultural, legal, demographics, political, environment and market segmentation and attractiveness.
Background information
Mc Donald's is the world’s leading fast food chain store, which began way back in the 1940s. The chain is famous for their fast food primarily the burgers. Two brothers Dick and Mac Donald began the burger brand who operated the very first restaurant in San Bernardino, California. The food chain has achieved tremendous success, which includes global expansion. There are over 30,000 global franchising stores across 120 nations. In the estimate, the chain store is serving close to 50 million people globally per day. The store generates an estimate of $15 billion per year making it a profitable organization.
Mc Donald is a competitive fast food chain because of its wide range of burger which includes fried chicken, muffins, nuggets, apple pies among others. Some of the drinks include coke, Pepsi, milo and coffee among others. The variety of burgers and drinks presented to the customers makes the chain sell more thus producing more profits. With a significant market share and more profits, the chain has been able to keep its competitive edge despite stiff competition from KFC, which is its main challenger in the global market business. The two food chains have been able to compete effectively because they sell almost similar products (KEILLOR et al., 2007). However, Mc Donald has been able to stand the competition due to its approach to nutritional differentiation. Notably, product differentiation is one of the first paths in a competitive market space. Such methods have continued immensely to the food chain making progress in the international market arena through an expansion which involves opening new branches across the globe. Therefore the current focus on the expansion into the Hungarian market is not a new strategy for Mc Donald’s only that the motivating factors might be different. And this brings us to the focus of this paper. The following illustration indicates some of the foods and drinks one would always find in the Mc Donalds chains stores across the globe
Source: mcdonalds.com
According to WANJEK (2005), the world's fast food market is projected to reach $743, 859 million by 2022. This is an indication that there is a potential in the global market and therefore, Mc Donald’s bid to expand into the Hungarian market is a possible venture. Consider the following map indicating the world’s fast food market share by region.
Before we consider the nature of the market pattern for fast foods in the Hungarian market, let’s find the Mc Donald’s competitiveness across the globe. This helps in understanding the influence and market power that the chain has regarding resources, profitability, and market share.
Consider the illustration below which indicates the regional market share for fast food
Hungary is in Europe and from the map, it is evident that the region is ripe for the fast food business. The business has already taken root and entry of a multinational company such as Mc Donald needs to select its approach well. This brings us to the position of the fast food market in Hungary. Consider the following map which indicates the nature of fast food in the Hungarian market.
The position of the fast food market in Hungary
Most of the consumer foodservice operators in Hungary have reached the highest point of fast food sales, and they depend on motivating market factors such as pricing, tourism and government incentives in the industry. Such factors have sustained a high level of eating habits among the consumers thus making the fast foods market competitive. However, it should be noted that the emerging concepts in the fast food market make the consumer foodservice a hot area for startups. The emerging concepts or ideas in the industry reflect the global latest trends, especially the target on the global guests who come as tourists among other consumers (MEUSBURGER, 2001). This poses a good entry point for Mc Donald. Also, there is a small percentage of the concept of franchising fast food in Hungary. Independent operators dominate the food service in Hungary, which makes Mc Donald’s concept of franchising a big boom in the Hungary market. In this case, Mc Donald’s theory will be viable, and with the utilization of the idea of product differentiation based on the quality ingredients and innovative menu, elements would make the food chain take off quickly. In essence, the fast food market in Hungary is ripe for investment.
Mc Donald’s entry Approach
The entry of Mc Donald’s into the Hungary market as an independent company depends on numerous factors as indicated earlier. These factors form the business environment.
Business Environment
A business environment encompasses factors, which influence the market pattern and forces which determine the ease of entrance. In the case of the Hungarian market, the following factors would form the basis of this discussion
Ø Population demographics and market milieu
Ø Cultural
Ø Legal
Ø Political
Notably, a combination of these factors determine the attractiveness of the market.
Hungarian Population and Market Milieu
The current population of Hungary is approximately 9,747,640. The present male and female population is 47 % and 52 % respectively. The country has been inhabited by several people throughout its history including the Gepids, Avars, Romans, and Celts. Currently, ethnic Hungarians comprise of the leading ethnicity at about 84 % of the total population (Koda and Ruttkay, 2017, 18). The Romani and Germans follow at 3% and 1% respectively.
In 2018, the rate of employment in Hungary increased from 60.3037 % in August to approximately 60.60 % in September. The average percentage of employment rate in Hungary between 2006 and 2018 was 52.72, and this figure rose to an all-time high percentage of 68.70 in February, this year. The table shown in the picture below is used to illustrate these figures.
Source: TRADINGECONOMICS.COM 1
It is significant for a business that plans to enter into the Hungarian market to focus on the nation’s significant demographic changes. The population of Hungary should be observed, and the patterns of new life in Hungary have to be followed because the labor market structure of the country is continually changing. The chief reason associated with the changing market structure is that a liberalized labor code was recently introduced in Hungary. Therefore, the rate of employability, as well as the objective of growing the employment figures, are the critical priorities of the Hungarian government. The results are an increase in the rate of employment as shown in the figure above. Furthermore, an expansion of the workforce in a country often reduces the dependency ratio of that nation which results in the growth of the economy thus making the market attractive.
It is crucial for McDonald's also to consider the fact that due to the increased labor force in Hungary, there is a highly likely chance that returns on its investment will be high. The primary reason for this projection is that the working class in Hungary will widen and since the Hungarian people have developed a culture of promoting businesses particularly the food industry, McDonald's’ will make substantial sales. Research has shown that workplace diversity is significantly good for businesses particularly in the food production industry (David, 2015). The workforce in Hungary is very diverse because of its different cultures that are associated with different races in that nation. Therefore it is highly possible for McDonald's to grow its profits if it adapts to Hungary’s labor force environment that is very diverse.
The cultural environment of Hungarian populace
This is one of the principal factors to be considered by Mc Donald before setting up a company in Hungary because of the difference in language, religion, and the food is eaten impact the ease of its entrance. For instance, the favorite Hungarian dish is the Goulash which is made of meat stew. The cuisine is highly regarded among the people because it is considered to be traditional fast food. In most cases beef and pork dominate in the preparation of this dish, however, in the recent past, chicken has been embraced. The culture of eating chicken would influence their love for the chicken burger which is the most dominant product of Mc Donald.
On the other, the official language is Hungarian, and 98 % of the populace speak it, while 2% make the minority groups which include German, Croatian and Serbian among others (Lindgreen and Hingley, M.K, 2012). This implies that the setting up of a new Mc Donald’s establishment in the region would require recruitment of the locals to add the local touch aimed at customization of the food outlet. This situation explains the reason why Mc Donald would not consider foreigners for most of the positions in the intended outlet. In the case of the religious majority of the people are Catholic adherents. When considering the culture of the people of Hungary regarding fast foods, it is realizable that majority of the Hungarian dishes are fast foods. Some of them include fried dough also called Langos and Gulyas or goulash among many others. The following illustration indicates
Source: Dreamstime.com
The eating culture of the Hungarians relative to fast food has over years grown based on their taste of the traditional dishes. This implies that fast food culture is not a new aspect in Hungary. It has existed, and Mc Donald would need to come up with modern ideas of product differentiation, especially on the nutritional content so that it would catch the market share with easy. Needless to say that the market is concentrated with various kinds of fast foods from some competitors such as pizza hut, Kentucky Fried Chicken, Nordsee, and Burger King.
Also, the Hungarians embrace business etiquette which ranges from a firm handshake, the timely arrival of a business meeting, face-to-face meetings and frequent dinner meetings among others (Koda and Ruttkay, 2017). All these social and cultural patterns indicate a population which is social and loves meeting over drinks and meals, hence a potential catchment for Mc Donald’s intended plan.
Political Environment
Hungary is arguably one of the best-prepared nations to have joined the European Union. The country enjoys both political and economic stability since the 1990s. Hungary conducted free and fair elections in 2010 and 2014 in which the Center-right Fidesz-KDNP alliance is winning both elections (Magyar, 2016). Since 2015, Hungary has continued to enjoy political stability that is increasingly coupled with economic success. According to the World Bank, Hungary’s absence of terrorism/violence and political stability (percentile rank) stood at 69.05% in 2016 indicating that it is politically stable. Lack of Terrorism/ Violence and Political Stability captures the extent at which there is a possibility that the Hungarian government will be destabilized by violent means, including terrorism as well as politically motivated violence.
Hungary’s government offers incentives to investors, including the lowest taxes and job market regulations hence attracting a significant number of investors. A thorough institutional transformation has been taking place in Hungary since 2010 (Magyar, 2016). One of the most significant reforms was constitutional reforms that paved the way to the promulgation of a new constitution in 2010. In other words, the new law was both pragmatic and symbolic development. In general, political stability has increasingly become a central element of the Hungarian model. In particular, Hungarian’s parliamentary majority has played an essential role in the successful management of both economic and social crisis over the last few years (Magyar, 2016). Apart from Hungary’s ruling party enjoying parliamentary majority, it also enjoys massive support among the electorate that has also contributed to the political stability of the country.
From the above analysis, it is evident that Hungary is politically stable and as such, it would be secure for McDonald to open its branch in Hungary. The Hungarian stable political environment will enable MacDonald to conduct its business activities with a lot of ease or with little challenges.
Legal Environment
Hungary’s legal system is grounded in civil law, and as such, cardinal rules governing business in the country are codified in both regulations and statutes. The main common options for investors or multinational firms wishing to establish businesses in Hungary encompass contracting with a local distributor or an agent, developing a joint venture, establishing a branch, or acquiring or establishing a company (Baker " Mckenzie, 2016). Since McDonald wishes to create a branch in Hungary, it must first register the application with the court of registration, including concluding articles of association. Founders are tasked with the responsibility of signing the articles of association. The reports of association are either prepared as a private document countersigned by the legal counselor/ a lawyer of the founder or as a public deep prepared by a notary public (Baker " Mckenzie, 2016). Two registration mechanism adopted in Hungary include a simplified registration process and general registration process. Even though the simplified registration process is faster compared to the public registration process, is riddled with a wide array of demerits. For McDonald’s to be able to proceed with the simplified registration process, it must employ a document referred to as TED (Template Establishment Document). The TED must be used as the articles of association of McDonald’s.
Moreover, the TED’s provisions are set out by Hungarian law and are not subjected to any changes whatsoever. Following this rule, the branch that McDonald’s want to establish in Hungary must be established with a financial year, which tallies to the calendar year. Additionally, the branch must employ Forint as its accounting currency.
Options for Mc Donald
Since most of the competitors are concentrated in Budapest, Mc Donald would need to go outside Budapest where there is a ready market for fast food as the first option. However, the company would need to use its financial power to stretch outside Budapest, where the catchment for a ready market niche that would meet its desired goals is available. This move would cost more compared to setting up an establishment within Budapest. The other option for Mc Donald is to consider setting up an establishment within Budapest, but it would need the organization to embrace a sophisticated level of product differentiation so that it offers the market a unique brand of foods. This approach would help the organization to capture a market share.
Conclusion
Hungary is a ripe market for Mc Donald’s ambition of expanding its market niche. However as discussed in this paper, some factors which include cultural pattern, economic status, population patterns, political landscape, and legal factors would profoundly influence its decisions to make the venture. From the discussion, it is evident that the business milieu is favorable for the investment. However, the organization needs to embrace a lot more sophisticated marketing and managerial approaches to succeed and compete effectively with the existing competitors.
List of references
Baker " Mckenzie. (2016). Invest in Hungary: Legal aspects of doing business in Hungary.
David, H., 2015. Why are there still so many jobs? The history and future of workplace automation. Journal of Economic Perspectives, 29(3), pp.3-30.
Keillor, B. D., Wilkinson, T. J., Thomas, A. R., " Keillor, B. D. (2007). Marketing in the 21st century. Volume 1 Volume 1.
Koda, T. and Ruttkay, Z., 2017. The eloquence of eyes and mouth of virtual agents: a cultural study of facial expression perception. AI " Society, 32(1), pp.17-24.
Magyar, B. (2016). Post-communist mafia state: The case of Hungary. Central European University Press
Meusburger, P. (2001). Transformations in Hungary: essays in economy and society: with 92 tables. Heidelberg, Physica-Verl.
Retrieved from https://www.bakermckenzie.com/en/insight/publications/2017/10/-/media/files/insight/publications/2017/10/belt-road/doing_business_in_hungary_2016.pdf?la=en
Wanjek, C. (2005). Food at work Workplace solutions for malnutrition, obesity, and chronic diseases. Geneva, International Labor Office.
Lindgreen, A. and Hingley, M.K. eds., 2012. The new cultures of food: marketing opportunities from ethnic, religious and cultural diversity. Gower Publishing, Ltd.
