A number of analysts believe that China's GDP growth is not just slowing. They are concerned that the economy could actually contract. That is not an unfair assumption. Exports are drying up. The Chinese middle class, which has been a major consumer of China's own goods is shrinking as factories close.
McDonald's (NYSE: MCD) is prepared to ignore all of that. According to Reuters, "McDonald's Corp, the world's largest fast-food chain, is optimistic about business prospects in China and plans to open about 500 stores in the country in three years."
Why take the risk? The answer is probably simple. McDonald's can afford to. As one of the few large US companies that has not seen its results damaged by the economic downturn, the world's largest fast food operation can push into new markets, while many of its competitors do not have the balance sheets or cash flow to take that risk. As China's economy recovers, McDonald's will have taken market share in a nation that is bound to see relatively rapid population growth and relatively strong GDP over the next several decades.
One of the most important things that will differentiate companies that should grow rapidly when the global economy recovers are those that were willing to put money into expansion while other firms in the same industry were retreating. McDonald's is one of the few that is heading in that direction.
Douglas A. McIntyre is an editor at 24/7 Wall St.
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Reader Comments (Page 1 of 1)
2-18-2009 @ 4:17PM
Kent said...
MCD might as well with the way things are going for them. Opening up stores is relative cheap investment with the idea that this recession won't be here forever. In tough times, a positive mind-set is essential to growth. Ironically, I think MCD is a good economic indicator on the state of our economy : share price declines in good times and increases during bad times. So caveat emptor should our economy recover.
3-25-2009 @ 6:56AM
Ryan said...
SHANGHAI (Reuters) - McDonald's (MCD.N) said that employees in southern China's Guangdong province would set up branches of the state-backed labor union, which last week accused the U.S. fast-food chain of breaching minimum wage laws.
"Since November last year, McDonald's China has been in productive discussions with Guangzhou city union officials, making progress in setting up a union branch," said McDonald's spokesman George Gu.
He denied Chinese media reports that the decision to cooperate with the All-China Federation of Trade Unions (ACFTU) in Guangzhou, the capital of Guangdong, and elsewhere in the province, was a response to the recent wage issues.
Guangzhou set the minimum wage for part-time workers at 7.5 yuan ($0.97) an hour at the start of this year, but the U.S. fast-food companies paid workers less than that, the union said.
The companies are not under any legal obligation to sign contracts with students, who are not officially seen as part of the workforce, the Guangdong labor authority said in an emailed statement on Tuesday.
The ACFTU had already set up branches at McDonald's restaurants in locations including Shanghai and Jiangsu and Anhui provinces, Gu said.
Last year, an official of the ACFTU said its goal was to double the amount of union branches to 60 percent of foreign businesses in China, naming computer maker Dell Inc. (DELL.O), and photography company Eastman Kodak Co. (EK.N) among those that would be targeted.
Employees at Wal-Mart Stores Inc. (WMT.N), the world's biggest retailer, set up the company's first trade union in the country last July. Within weeks, unions had been established at all of Wal-Mart's 60 outlets in 30 cities across China.
In China, where independent unions are illegal, belonging to the state trade federation does not necessarily mean better labor standards or higher wages.
With increasing numbers of Chinese workers leaving the state sector and working in private and foreign companies, analysts say the drive to unionize could be aimed at trying to bring more employees under state control.