External Environment Analysis – Mac-Donald’s Malaysia

This report engages in an external environment analysis of the business environment in which McDonalds Malaysia operates. The tools used in the report to carry out such an analysis are Pestel framework and Porters 5 forces. The report concludes with a number of effective recommendations that can be considered by McDonalds in order to grow as strategically as possible in the coming years.

Running head: EXTERNAL ENVIRONMENT ANALYSIS – MACDONALDS MALAYSIA
External Environment Analysis – Mac-Donald’s Malaysia
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1EXTERNAL ENVIRONMENT ANALYSIS – MACDONALDS MALAYSIA
Executive Summary
Malaysia is one of the largest countries in the region of Southeast Asia and there are
many foreign businesses that are in operation in this part of the world. Malaysia is a country that
welcomes foreign direct investment in any and every form and one prominent multinational
business enterprise that is seen to be in operation in the country is McDonalds. This report
engages in an external environment analysis of the business environment in which McDonalds
Malaysia operates. The tools used in the report to carry out such an analysis are Pestel
framework and Porters 5 forces. The report concludes with a number of effective
recommendations that can be considered by McDonalds in order to grow as strategically as
possible in the coming years.

2EXTERNAL ENVIRONMENT ANALYSIS – MACDONALDS MALAYSIA
Table of Contents
Introduction......................................................................................................................................3
1. About Malaysia McDonalds.....................................................................................................3
2. External Environment Analysis of Malaysia............................................................................4
2.1. PESTEL Analysis of Malaysia.........................................................................................4
2.2. Porters 5 Forces Analysis of McDonalds Malaysia..........................................................7
Recommendations for Strategic Growth and Development............................................................9
Conclusion.....................................................................................................................................10

3EXTERNAL ENVIRONMENT ANALYSIS – MACDONALDS MALAYSIA
Introduction
Malaysia is a thriving country in Southeast Asia that is home to a cosmopolitan and
multi-ethnic population of substantive size. There are many global food chains and fast food
companies that are in operation in the country of Malaysia, a well-known example in this respect
being the McDonalds fast food joint. McDonalds has been running its operations in Malaysia for
quite some time now and has managed to acquire an excellent reputation for the high quality of
its food and efficient services (Ghazali et al., 2019). This report prepares an external
environment analysis of the McDonalds food chain as seen to exist in the country of Malaysia.
For this purpose, the report provides a background to the company, engages in a PESTEL
analysis of Malaysia followed by an analysis of the competitive environment in which
McDonalds operates using the model of Porter’s Five Forces. The report concludes with a
number of recommendations on the strategic options that can be used by the organization in
order to attain its key objectives.
1. About Malaysia McDonalds
McDonalds is a food outlet that has its presence in a number of important cities and
towns in the country of Malaysia. It is famous for its burgers, fries and shakes just as it is in other
parts of the world where it is known to operate (Harrington et al., 2017). The success of
McDonalds in Malaysia lies in the fact that this is a destination that can be visited by customers
of every budget and every economic background and its food products are not those which are
restricted to the elite alone. McDonalds burgers and fries in Malaysia are coveted by customers
of all ages too, with foods here catering to diverse tastes and giving customers value for the

4EXTERNAL ENVIRONMENT ANALYSIS – MACDONALDS MALAYSIA
money that is spent on such food. McDonalds Malaysia allows customers to order food online, as
takeaway and have seating arrangements for dining as well (Ghazali et al., 2019).
2. External Environment Analysis of Malaysia
2.1. PESTEL Analysis of Malaysia
Political Factors – Malaysia is a company that was formerly a colony of the British Empire. It
has had many long standing rulers, a factor that has contributed to political stability in the
country. The political stability and security which prevails in a country like Malaysia is
something that allows independent businesses to flourish here with great success. The
welcoming approach of the Malaysian government to foreign direct investment and the fact that
multinational enterprises like McDonalds are allowed to run business operations over here,
implies that there are no rigid controls or security measures that are imposed on the government
on the running of a foreign business enterprise. The business is able to administer its operations
with efficiency and proficiency because of the dynamic and flexible political and working
environment that is facilitated in Malaysian cities and towns by the government of Malaysia
(Rodriguez et al., 2015).
Economic Factors – Economically, the country of Malaysia is one that has undergone a
transformation right from the decade of the 1970’s. From being primarily a manufacturer and
producers of raw materials, the country has now evolved into a manufacturer and producer of
multiple finished products. Prime Minister Najib is the head of the state right now and he intends
on transforming the country of Malaysia into a high income country by the year of 2020. In this

5EXTERNAL ENVIRONMENT ANALYSIS – MACDONALDS MALAYSIA
pursuit, the government of Malaysia is attracting investment in a number of different areas such
as in medical technology, high technology industries, and Islamic finance as well as in the area
of pharmaceuticals. The government is also one that is making a considerable amount of effort in
boosting domestic demands, and the primary aim of doing this is to make the economy of
Malaysia one that is less dependent on exports and more independent by having its own set of
economic resources and high revenue growth to fall back on. The main driver of the economy of
Malaysia is electronic goods and services. The high economic growth that is prevalent in a
country like Malaysia and the continued boost that is being given by the government to the
growth of industry in the country, has provided a foreign business enterprise like McDonalds
Malaysia with a flexible and secure economic environment in which it can conduct its business
operations without worrying about controls being imposed or any type of restriction being
imposed on the business by the government of Malaysia (Crawford, 2015).
Social Factors – Malaysian society is a multi-ethnic society and it is home to people from not
one but diverse ethnic and economic backgrounds. Apart from the native Malays, ethnic groups
that are seen to reside in the country of Malaysia are Indians, Chinese and Koreans. The diverse
ethnic population and well-developed society which the country of Malaysia is characterized by,
enables a multinational business like McDonalds Malaysia to find the target population that it
needs in order to run its operations in a smooth and hassle free manner. There are many people in
Malaysian society who have the purchasing power that is needed to buy McDonalds burgers,
fries and other products, enabling the business to flourish in this part of the world (Crawford,
2015).
Technological Factors – As mentioned above, the government of Malaysia is playing quite an
active role in encouraging investment in high technology industries. Technology in Malaysia is

6EXTERNAL ENVIRONMENT ANALYSIS – MACDONALDS MALAYSIA
something that is highly advanced and a business like McDonalds Malaysia is able to fall back
on the use of apps and other forms of technology like online e-commerce platforms in order to
engage in the sale of its products. Customers can order food from McDonalds online at their
convenience and pay for the food that they buy from McDonalds using online payment
mechanisms that function on high speed internet (Bragg et al., 2018).
Environmental Factors –A concern for the environment is seen to exist in the country of
Malaysia, given that this is a tropical nation that in recent years has been subjected to much
environmental degradation. Urbanization in particular is something that is seen to contribute
greatly to the dire situation of the natural environment in Malaysia. Given this dire situation, a
multinational business enterprise like McDonalds Malaysia is one that takes care to preserve the
national environment of the country as much as it is possible to do so, packaging food products
in brown paper bags and avoiding the use of plastic to the greatest extent (Samson et al., 2016).
Legal Factors – When it comes to understanding the legal system that prevails in the country of
Malaysia, it is important to understand that it is a dual system of justice that prevails in this part
of the world. The country adheres to Islamic Law for the most part excepting the Federal
territories of the country of Malaysia which are governed under a different system of justice.
Strict laws and legal instruments are in place in the country, a well-known example of the
implementation of justice being the Kelantan Syariah Criminal Code Enactment of 1993.
Proposals are now being made to have the common law system which is currently in existence in
Malaysia replaced with more democratic laws and a system of governance. The dual system of
justice that prevails in the country of Malaysia does not however interfere with the operations of
a multinational business enterprise like McDonalds Malaysia. The business is able to fall back on
the existence of a safe and secure legal framework that looks into issues of injustice in a quick

7EXTERNAL ENVIRONMENT ANALYSIS – MACDONALDS MALAYSIA
and easy manner and which gives a business like McDonalds Malaysia the legal framework that
it can rely on to run its business operations without worrying about running into trouble with the
government or with the legal authorities of the country in any way (Ghazali et al., 2019).
2.2. Porters 5 Forces Analysis of McDonalds Malaysia
Competitive Rivalry – Although a business like McDonalds Malaysia is doing quite well in the
different cities and towns of its operations in the country, this does not mean that it does not face
rivalry. Burgers and fries of the type that is supplied by McDonalds Malaysia is now being
increasingly offered by local enterprises in the country. There are many local burger and fast
food joints that are gradually coming up in the cities and towns of Malaysia and which are giving
stiff competition to McDonalds Malaysia by offering similar or related food products for a lower
price. As a result, it can be stated with the greatest amount of certainty that the threat of
competitive rivalry for McDonalds Malaysia is quite high (Abratt & Benedixon, 2018).
Bargaining Power of Buyers – Given the fact that there are today many burger joints and fast
food joints that are in operation in Malaysia there are many options that customers can choose
from, when it comes to the procurement of fast food. The bargaining power of buyers for
McDonalds Malaysia is something that can be said to be quite high. This is because buyers do
not necessarily have to visit McDonalds in Malaysian cities if they are craving for fast food.
There are many local options that they can turn to in order to procure the same type of fast food
but at rates that are far lower and consequently far easier on the pocket of consumers.
McDonalds in Malaysia is an enterprise that needs to make sure that it keeps its food products
priced as competitively as possible in order to cater to the needs and requirements and the

8EXTERNAL ENVIRONMENT ANALYSIS – MACDONALDS MALAYSIA
demands of the buyers and keep the bargaining power of buyers lower than what it is (Khan et
al., 2016).
Bargaining Power of Suppliers – The fact that there is now a proliferation of fast food centers
in the country of Malaysia and also the fact that there are so many joints and fast food
destinations in the country that require the regular and consistent supply of raw materials needed
for producing various types of fast food that McDonalds is well-known for, there are many
suppliers who are present to take care of the supply needs for a business like McDonalds
Malaysia. The bargaining power of suppliers for McDonalds Malaysia is therefore likely to be
quite low. Suppliers are not going to be in a position to dictate terms and conditions to a business
like McDonalds. The suppliers are going to have to work with regular business rules and
regulations and are going to have to comply with the demands and the requirements that are put
forth by McDonalds Malaysia in order to be able to ensure that they are regularly called upon by
McDonalds Malaysia to supply raw materials or rather the ingredients that are needed for making
the type of fast food that McDonalds happens to be so well-known for (Khan et al., 2016).
Threat of Substitution – The threat of substitution for McDonalds Malaysia is also something
that is relatively high, given the fact that fast food is something that is much in demand in the
country. There can be a new business which emerges and which substitutes the type of fast food
that is currently being produced by McDonalds Malaysia, giving the business a lot of stiff
competition which it may not be prepared for (Ghazali et al., 2019).
Threat of New Entry – The love and the demand for fast food in a country like Malaysia
coupled with the fact that there is a continued growth or proliferation of fast food businesses in
this part of the world, implies that a new fast food business can emerge at any given point of time

9EXTERNAL ENVIRONMENT ANALYSIS – MACDONALDS MALAYSIA
that will offer similar or related fast foods and that too for a price that is lower than the price
which McDonalds Malaysia is seen to charge for its fast food. Gradually, local populations who
are interested in procuring American style fast food but who do not want to pay as much as they
have to, to get the same from McDonalds, will find themselves getting attracted to such new
local businesses very readily, and as a result McDonalds Malaysia will end up losing a lot of its
target population or customer base which it has right now. The threat of new entry for a business
like McDonalds Malaysia is therefore quite high (Harrington et al., 2017).
Recommendations for Strategic Growth and Development
The following recommendations can be taken into consideration by McDonalds Malaysia in
order to be able to grow strategically as an organization and keep its rivals and competitors at
bay at all times.
 One of the most important recommendations that can be taken into consideration by
McDonalds in Malaysia is to engage in the increasing use of social media in order to
disseminate greater knowledge about the food products of McDonalds and thus cater to a
wider clientele than it is able to at the moment. McDonalds Malaysia should not hesitate
to make as much use as possible of social media platforms such as Facebook, Instagram
and Twitter, in order to spread information about the business and its services (Crawford,
2015).
 Another crucial recommendation that can be taken into consideration by McDonalds in
Malaysia is add greater variety to its food products. While the existing products that are
offered by McDonalds in Malaysia are exciting enough and cater to the demands of its
target population in the country, diversifying and adding a greater number of interesting

10EXTERNAL ENVIRONMENT ANALYSIS – MACDONALDS MALAYSIA
products to its existing list of burgers, sandwiches and fries, will help the business to
establish its roots in the country of Malaysia with a greater degree of prominence
(Crawford, 2015).
 The third and final recommendation of McDonalds Malaysia would be to engage in the
recruitment of diverse sections of the Malaysian population into its workforce in order to
ensure that all sections of Malaysian society are well-represented here. By making sure of
the fact that its workforce is as diverse as possible and that it involves recruiting people
from all sections of Malay society, McDonalds Malaysia will end up earning a greater
and better name for itself in the country, which in turn will help the business to fight its
rivals and competitors in as effective a manner as possible (Samson & Sheela, 2016).
Conclusion
Thus, the external environment analysis of McDonalds in Malaysia goes to show that the
business is doing well in the country but that there are better or more steps that can be taken by
this business in order to establish prominence in this part of the world. McDonalds in Malaysia
has plenty of competitors and rivals to combat and fight on a regular basis, and it needs to
diversify its products and recruit more people from different sections of the Malay population in
order to gain a better reputation and more prominence in the country.

11EXTERNAL ENVIRONMENT ANALYSIS – MACDONALDS MALAYSIA
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