The FDI angle:

• McDonald's exemplifies how foreign direct investment (FDI) has led Western tastes to be enjoyed worldwide.
• China is a critical part of McDonald's massive overseas expansion plans.
• Why does this matter? The fast food giant is investing heavily in China when many Western corporates are shying away.

Michael Keaton is an unlikely figure in the realm of global corporate expansion. Yet the actor successfully evokes the McDonald’s former CEO, Ray Kroc, in the 2016 movie Founder; a dramatisation of the journey from buying the company and its few restaurants in California to creating the world’s largest fast food chain.

When explaining the company’s success in the movie, his character simply states: “One word … persistence”. 

This is an apt word. On December 6 2023, McDonald’s set out its most ambitious expansion strategy ever. The company plans to open more than 9000 new locations by 2027, bringing its total to a staggering 50,000 restaurants worldwide.

And this is just over a year after losing $1.2bn from exiting the Russian market following the outbreak of the Ukraine war.

China push

Unlike other Western corporates shying away from China, McDonald’s is persisting in its plans for Asia’s largest economy. This comes with a hefty price tag: in 2024, McDonald’s expects capital expenditures (capex) of $2.5bn, up from $1.89bn in 2022. Capex is expected to rise by between $300m and $500m each year, meaning its 2027 capex will likely between $3.4bn and $4bn. 

Around 7000 these new openings will be in its roughly 75 international developmental licensed markets, where it licences rights to franchise the McDonald’s brand. More than half of these will be opened in mainland China; together with Hong Kong, this represents around 5% of its systemwide sales in 2022. 

Since opening its first restaurant in Shenzhen in 1990, the Chinese market has been central to McDonald’s growth plans. Today, the fast food giant has almost 6000 restaurants in China, more than double its 2017 footprint. By 2028, it aims to reach 10,000 restaurants in the country.

“There’s no reason why China can’t be a 20,000–25,000 store market for us,” said McDonald’s CEO Chris Kempczinski during an investor day on December 6. The fast food giant recently bought back Carlyle’s stake in its China business, increasing its stake from 20% to 48%. 

More data trends to understand the new age of globalisation:

• Brics expansion dilutes G7 investment influence
• The rise of the EU's formal FDI screening
• Chinese outbound FDI boom signals 'new phase'

In 2017, McDonald’s sold control of its restaurants in mainland China, Hong Kong and Macao for $2.1bn. Chinese state-owned conglomerate Citic still owns the majority of McDonald’s in the country. 

Other fast food outlets are bullish on Asia’s largest economy. Yum China Holding, the owner of KFC and Pizza Hut chains in mainland China, aims to open 1300 stores in the country this year.

‘Innocuous’ burgers?

McDonald’s expansion in China comes against a backdrop of a slowing domestic economy and rising geopolitical tensions. 

“McDonald's actually has a lot of potential because it’s considered cheap, quick [and] convenient,” says Shaun Rein, the managing director of China Market Research Group. 

While foreign companies must be “cautious about entering China and getting caught up in the geopolitical fight”, Mr Rein adds this does not apply to brands like McDonald’s in “innocuous” sectors.

And yet, McDonald’s was a major symbol of the Western exodus from Russia after its invasion of Ukraine. This begs the question: does the fast food giant worry about the risk of China invading Taiwan? 

Mr Rein says that many multinational corporations are reducing their investment into China out of fears over a war over Taiwan. “There would be political pressure to divest Chinese operations in the event of war, but my guess is there would be greater pushback from the business community than there was over Russia.” 

Alicia Garcia-Herrero, the Hong Kong-based chief economist for Asia-Pacific at Natixis, doubts an invasion — which she believes is very low risk in the near term — will require every company to leave China. She notes that such an invasion would nonetheless be a big hit for McDonald’s and other foreign firms in the Chinese market.

Despite a challenging global outlook, McDonald’s has proven resilient due to aggressive marketing and affordable menu options. Global systemwide sales grew year-on-year by 11% to reach $19bn between January and September 2023.

More than three decades after Mr Kroc’s death in 1984, one aphorism of his epitomises McDonald’s latest chapter. “If you're not a risk taker, you should get the hell out of business.”

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