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Understanding the market

Updated Saturday 1st May 2010

Theo Paphitis adapted La Senza to local demands. Devendra Kodwani says McDonalds illustrates why this makes sense.

Theo Paphitis found there were surprises and challenges when taking the La Senza chain to a different type of nation:

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Theo Paphitis
From my personal experience, when I had a lingerie business, when that business decided to go to other markets, and I'm talking about the Middle East in this particular case, it was a bit of a culture shock to us because we weren’t allowed to put pictures of ladies wearing lingerie.  Now of course we were selling lingerie that’s worn by ladies.  So we were accepting the old adage it does what it says on the tin, but unfortunately in the Middle East in some countries that’s not possible, you couldn’t expose the human flesh.  Not only that, but you only had men working in stores, you couldn’t have girls.  Not only that, but that meant no changing rooms.  So you couldn’t display your product in a marketing way that we’re used to in the UK, you couldn’t allow the customer to try it on, and you had to have a boy serving a girl, which is always very difficult for an intimate product.  So there was lots of things to get around.

For instance the marketing material had to be line drawings that vaguely resembled the human form, and no dressing rooms meant people had to take it home to try it on and bring it back, and actually there was also another point, that certain times of the day the staff had to be allowed to go to prayers, which meant everybody walking out the store, leaving the store unmanned with the money in the tills while they pray.  Could you imagine that happening in the Western world and when you get back to the store, your product still being there and the cash still being in the till?  Different cultures, different values, so you take the rough with the smooth and you adapt.

2’01”

For Devendra Kodwani, McDonalds provides a good lesson in adapting to local needs:

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Devendra Kodwani
First thing what McDonalds did was that instead of setting up their own chain of restaurants in India, they followed their global model.  What they do as locally go in partnership with some franchisee.  So to that extent they did exactly what they do in other countries, find some suitable local partner, become joint venture with them, give them franchisee rights and who in turn invest money in creating the local network of restaurants.  So to that extent they did exactly what they do globally.  But what they did not do the same as they do globally was to offer the same product range which they offer globally.

So we know McDonalds has a very standardised fast food product portfolio, such as burgers and other items which contain beef and pork and so on, but when they came to India, I think they entered India in ’96, 1996, around that time, they quickly recognised that religion and culture are the two aspects of Indian fast food market which had to be considered very carefully.  Most Indians are quite averse to eating non-vegetarian stuff, forget about beef and pork, because beef actually will be considered blasphemous because cows are worshipped in India.


So when you're going into a market which is so different than your Western markets or other markets in the world, then you have to be sensitive to that.  So what McDonalds quickly did was not offer beef and pork related products, none of their products in India would contain beef and pork, so that’s the first step they did.  Obviously they substitute it with something, so they went for local meat which people eat there, where we eat like lamb and other things, so they adopted that type of meat for India.


Two people are very sensitive to how the food is prepared in the country, because whether they eat in their own home, dining room, or they eat in restaurant, people will always worry where and how the food was prepared in the kitchen.  And looking at that sensitivity, obviously McDonalds responded by creating two cooking facilities in each restaurant, so vegetarian items are prepared differently, in different way, in different location, in separate kitchen, and non-vegetarian in a different kitchen.


So much so that they claim that even the utensils are not shared between the two kitchens, just to keep the purity of vegetarian vegetarian.  They don’t use the cooking medium which is animal extract.  So most of the cooking medium, all the cooking medium is vegetable oil, so that’s another thing they did.  And I think their sourcing of supply, materials for example, vegetables and wherever they source chicken etc. also tries to reflect the local culture there.  Their marketing reflects the local culture, so they capitalise in that sense on the local culture by offering vegetarian menu and so on.


So I think this was the main thing which McDonalds did to adapt the fast food products which they sell all around the world, in the Indian markets, to the taste of Indian people, vegetarian preparation and sourcing and servicing all had to be catered to, in the particular cultural and religious context of the country, and that is why they have probably been successful now in India with the nearly 160, 170 restaurants all around the world.  But I think I must also say about the product relevance, one fundamental economic variable, an economic consideration which all companies must keep in mind that certain products can be offered in a market only when there is an adequate disposable income with people.  I mean if McDonalds came to India in the 1950s and ’60s, they would not have got such big market.


So today when the market has risen in terms of the people with purchasing power in absolute numbers, so you’ve got like close to 150 million middle class Indians, middle income group people, who can occasionally afford McDonalds, because even at the price of equal to about £1, £1.50 for a typical McDonalds meal, it’s a big price for most of the Indians.  So I think product relevance has to consider whether the market is financially first ready, whether you have sizeable economic purchasing power in the country to afford that kind of a larger scale operation such as McDonalds, because you can't have five restaurants of McDonalds and be profitable in the country, you had to have a chain of restaurants to be successful.  So the scale is important.


So those businesses which depend on the scale, then they had to first be ready, they should first consider whether there is enough economically viable market before they go and understand the local culture and the specific market nuances and customer preferences.  Having done that of course then you go in and explore what is the local context of the religion, culture and how it influences habits of people or choices of people, and then incorporate those things into your, the way you market the product, the way you produce the product, and so on.

5’30”

Trading in new markets? Where do you start? You could investigate The Open University Business School course Working Across Cultures.

 

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