Costs Likely to be incurred by setting up in Nigeria
The costs for setting up business in Nigeria by McDonald’s includes rent, transportation costs, cost of raw materials or food stuffs, salaries/staff cost, branding and advertisement costs, electricity and petrol, transportation costs for home delivery service .
The fixed costs for setting up is Nigeria rent, training costs and salaries. McDonald’s would have to pay for these costs whether they make a loss, break even or make profits. They are fixed so far they do not pass the budgeted level of activity. The variable costs on the other hand include but are not limited to the following : foodstuffs, branding and advertising, electricity, petrol and transportation costs. They vary directly with the level of activity. Increased activity levels would lead to an increase in the variable costs.
Cost leadership: McDonald’s buys supplies in bulk and get huge discounts, and they pass this on to their customers. Also McDonald’s helps franchises by leasing land and property they own to them. McDonald’s is known worldwide for being a cost leader; they offer amazing food deals at prices that cannot be matched by their competitors. There is also the speedy delivery of their food to customers.
Differentiation: McDonald’s studies the culture of any region or country they plan to open in, and they sell foods related to the cultural belief of that region. The company caters to a large customer’s market with varying tastes and thus can’t afford to introduce products without first familiarizing itself with provincial preferences for food. For this reason, McDonald’s distributes in foreign locations with the help of franchises who are well aware of what works within a country.
Although McDonald’s doesn’t change its primary product range for anyone country, they make certain changes in secondary products for each country to adapt to their various needs and culture.
MODE OF ENTRY
They are different modes of entry McDonald’s can use to enter the Nigerian market. They include
- Foreign direct investment: Foreign direct investment is when McDonald’s come themselves to establish in Nigeria directly without partnering with already established restaurants or licensing to anybody. They set up shop and sell to the Nigerian populace directly.
- Franchising: it involves granting another business the right to use its trademark or trade name as well as certain business systems and processes. This however can result in loss of business strategy, technical know-how and in negative terms loss of international product reputation and integrity.
- Exporting: Involves producing its products in USA, and serving it in the Nigerian market. This is not advisable because food is perishable and can spoil easily. Also the cost of transportation is on the high side, and there are trade or import restrictions which they might be prone to.
Foreign direct investment is my strategy of choice because rents are not as expensive as rents in USA, UK or other developed countries. Also in terms of labor, there exists a favorable availability of both skilled and unskilled workforce at a relatively lower cost than its origin and this shows a good level of Foreign direct entry by McDonald’s