McDonalds and De-Globalization

The only three McDonald’s restaurants in Iceland became the latest victims of the global economic crisis. According to an AP report, all three restaurants will close next week due to rising costs. The three franchise operations are required, according to their franchise agreement, to purchase and import all of their supplies from Germany. But the financial meltdown in Iceland—and the dramatic decline in the value of the krona, Iceland’s currency—combined with high tariffs on imports have led to a spike in operating costs for the restaurants. Indeed, according to the restaurants’ managing director, Magnus Odmudsson, operating costs have doubled over the past year, making it impossible for the restaurants to remain competitive.

According to the Big Mac index, Iceland already has the third most expensive Big Mac in the world, retailing for 650 krona ($5.29), falling behind Norway ($5.79) and Switzerland ($5.60). To meet the higher operating costs, Odmudsson said prices would have to increase to 780 krona ($6.36), a level which would make the restaurants uncompetitive.

The decision to close operations in Iceland represents a reversal of McDonald’s trend of increasing international operations. McDonalds currently operates in 119 countries on six continents. But the expansion has been controversial. In France, McDonald’s has been the target of protestors who claim that the chain restaurant undermines French cuisine, while in India, it faced lawsuits for allegedly using beef fat in the production of French fries. And earlier it was forced to trim operations in countries like Bolivia, where operations were not profitable.

The current global downturn presents new challenges for McDonald’s and other multinational corporations. Currency instability, a rise in protectionism, and an increasing preference for locally produced goods. This shift hardly represents a dramatic shift away from the process of globalization that has defined the global political economy since the end of World War II. But it does present, in a clear way, the challenges transnational operations face in an increasingly interconnected global economy.

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