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McDonald's Moving to Franchise Model in Singapore and Malaysia

7/26/2016
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McDonald's decision to move from a wholly-owned to development licensee model for Singapore and Malaysia. 

Wholly owned and franchised models each have their own merits and disadvantages. Both models are profitable. Nonetheless, franchise models leverage on other companies’ resources. This strategy might help McDonald's to become more aggressive in opening outlets, particularly in Malaysia. In 2015, KFC had around 600+ outlets in Malaysia whereas McDonald’s had around 259 outlets.

Thus, such a strategy is based on corporate strategy point of view instead of looking from the characteristic from the markets. McDonald’s Corp might be eyeing a different market which requires capital and is untapped. Myanmar is one market where KFC is already present but McDonald’s is not.

McDonald's consumer market in Singapore and Malaysia compared to other countries in Asia.

McDonald’s Corp sales in both Malaysia and Singapore is around USD400 million each in 2015 from 259 and 131 outlets respectively. Hong Kong has around 339 outlets and sales of around USD700 million the same year. Indonesia and Thailand’s McDonald’s sales are around half of Singapore and Malaysia around USD200 million each.

Selling the franchise as a bundle for both Singapore and Malaysia could create more value-added benefits from product supply, innovation and marketing strategies. It will provide better economy of scale for future franchisees. In addition, Singapore Fast Food industry forecast growth is relatively slower as it is more mature and saturated. Thus, combining the two countries will attract larger and better-resourced suitors. Bigger companies will have more resources to compete with other fast food companies such as Yum! Brands.

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