Running Head: BURGER KING.
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Burger King
Students Name:
Course Name and Number:
Instructors Name:
Submission Date:
BURGER KING.
Introduction
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Burger King is a fast food chain restaurant that mainly sells burgers, sandwiches, French
fries, desserts, milkshakes as well as soft drinks. Burger King was founded in 1953 by Keith
Kramer and Matthew Burns. Its headquarters are located in Miami-Dade County, Florida. The
company has 12,700 outlets in 73 countries. The company employs more than 34,000
employees. Burger King uses franchising as its global expansion strategy. 3G Capital is the
largest shareholder in Burger King (Stephen 2011).
Thesis statement
Purpose of paper
This paper tries to identify how currency movements affect the profits as well as the
operations of Burger King, how the various economic agents affect the operations of the
company as well as what the company should do in case of a recession.
Overview of paper
The contents of this document contain the main currencies that Burger King deals with as
well as an explanation of how exchange rates affect the operations of the company. The
document also explains how the economic agents in the macro-economy affect the company, an
estimate of how a severe financial crisis would affect my MNC and the type of reform that
would be need if a financial crisis would occur. Lastly, I have included a summary of the main
points of my paper, the lessons learned as well as some recommendations for the company.
BURGER KING.
Body
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Burger King deals with over 46 global currencies in the countries that it operates in. The
main currencies that the company deals in include the United States dollar, the Euro, the
Canadian dollar as well as the Chinese Yuan. I have included these four main currencies because
majority of the company’s sales are recorded from countries that use these currencies.
The company is impacted both positively as well as negatively by exchange rates in the
countries that it operates in. The issue of exchange rates impacts the running of the company as
well as the companies’ profits in the following ways. If a currency of a given country such as the
Chinese currency increases, the companies’ profits as well as royalties it acquires from its
Chinese franchises will also increase, let’s take for example the Chinese Yuan has increased in
value by 15% over the past one year. The profits that the company gets from that country will
also increase by the same amount if other factors remain constant. If the Chinese currency
decreases in value by 15%, the profits that Burger King acquires from the Chinese franchises
will also decrease by 15% if other factors such as sales and government taxes remain constant.
The company will at times operate at a loss if the currency of a certain country loses its value
completely. It would take long for the company to regain funds invested if the company had not
reached break even. These are examples of forex exchange risks that the company must take into
consideration before venturing into a country. A weaker United States dollar would make its
restaurants in the United States import goods as well as pay for foreign services expensively. A
stronger dollar decreases the companies’ foreign payments for goods and services (Stephen
2011).
BURGER KING.
How each of the main economic agents in the macro-economy impacts my MNC
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Households
■ Supply of land, labor, and capital
The high demand of land increases the companies’ costs of setting up a restaurant. This
also increases the time the company will take to break even for that particular restaurant. The
low supply of land also bars the company from setting up a restaurant in suitable location. Labor
on the other hand is both available to the company both within the United States as well as in
other countries. The costs of remunerating workers within the United States has however
increased as wages within the United States increase and as the countries’ unemployment rate
continues to decline. The company is also faced with issues such as the push by fast food
workers to increase the minimum wage that should be awarded to workers. Capital on the other
hand is never an issue for the company. Burger King has remained profitable for the past few
years and has good cash flow as well as cash reserves to cater for its expansion needs. The
company can also raise additional funds in the stock exchange through the issuance of a rights
issue (Roy at. el. 2014).
■ Purchase consumer goods and services
The demand for Burger Kings products is critical for the companies’ success. An increase
in their demands would increase the companies’ sales levels as well as profits while a decrease in
their demands would decrease the companies’ sales as well as profits. This situation whereby the
companies’ products were on low demand mainly occurred during the 2008 global financial
crisis where consumers were spending less due to high unemployment rates as well as an
uncertain future of economies (Dingha 2013).
■ Consumer savings
BURGER KING.
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The sales levels as well as profits of the companies’ franchises in countries with high
incomes tend to be high because saving rates are high as well. This is because high incomes
results to high spending as well as savings. Examples of countries with high savings rate include
China, Hong Kong, Malaysia, Qatar, United Arab Emirates, including countries in Europe as
well as America. Such countries will also tend to have high per capita income.
Countries whose citizens earn low wages tend to have low saving rate because majority
of consumers prefer to prioritize basics such as food, clothing as well as shelter. The companies’
sales as well as profit levels in these countries are low. Examples of such countries where saving
rates are low include Kenya, Cambodia, India, Pakistan, Kazakhstan, Sir Lanka, Taiwan as well
as Thailand. Most countries that have low savings rates have low per capita income as well.
■ Pay taxes
Taxes are a burden to any company not just to multinational corporations such as Burger
King. Examples of taxes include corporate taxes, income taxes as well as value added taxes.
High taxes will tend to reduce business confidence as well as reduce business profits. Low taxes
on the other hand encourage businesses to invest as well as produce and sell more.
Businesses
■ Use the factors supplied by households to produce the nation’s output
Here we are going to consider the demands for the companies’ products. The demands
for the companies’ products will mainly depend on the incomes of consumers. High incomes
would result to high demands for goods and services and thus allowing producers to produce
more goods and services to the public.
■ Purchase investment goods
BURGER KING.
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Since Burger King does not sell investment goods, the changes in the demands for
investment goods would not affect the company. The prices of its production inputs will however
affect its costs of capital. An increase in the companies’ costs of investment goods would thus
increase the companies’ capital costs.
Government
■ Purchase government goods and services
Since the government does not purchase Burger Kings products, a change in government
budgets would not affect the companies’ sales. An increase in government spending will
however increase the many supply within the economy which will result to increased consumers
spending.
■ Collect taxes
Increase in taxes would negatively affect the sales levels as well as profits of the
company. Decease in government taxes would result in an increase in the sales levels as well as
profits of the company.
Foreigners
■ Purchase exports
Burger King does not export its products; the company expands internationally through
franchising, an increase in the demands of the companies’ products in the international market
increases the companies’ sales as well as profits.
■ Supply imports
BURGER KING.
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Burger King mainly imports capital goods such as kitchen equipment. A change in the
prices of these products would affect the companies’ capital expenditure. The availability of
these goods on the other hand would also affect the companies’ operations (Andreas 2014).
How a severe financial crisis would affect my MNC and the type of reform that would be
need to be considered.
A financial crisis is as a result of reduced economic growth of a country in two
consecutive quarters. A financial crisis is caused by reduced consumer demands for goods and
serves, increased trade deficit, and reduced government spending as well as reduced business
investments in a country. If a financial crisis happens, my MNC would be affected in the
following ways,
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Sales levels would reduce.
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Business confidence would decline.
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It would lead to a closure of some of the companies’ locations due to losses.
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The companies’ employees would remain redundant.
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The company would halt expansion programs as well as introduce cost cutting expertise.
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The company would produce less.
The reforms to be considered if a financial crisis occurred
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Production cuts.
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Closure of unprofitable locations.
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Redundancy measures.
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Price reductions.
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Advertising more.
BURGER KING.
Conclusion – Summary of main points
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The contents of this document contained the main currencies that Burger King deals with,
an explanation of how exchange rates affects the operations of the company. The document also
explained how the economic agents in the macro-economy affect the company, an estimate of
how a severe financial crisis would affect your MNC and the type of reform that would be need
to be considered if a financial crisis occurred.
Lessons Learned and Recommendation
I learned that every economy that Burger King operates in is different. The company is
profitable in one county than others because of the variations in the economic agents of different
countries. Such variations include taxes as well as consumer behavior when it comes to
spending. I also learned that the level of business profits will depend with how the economy of a
county is performing. For example, Burger King is performing well in the United States as well
as in China, its performance in the Unites States in the year 2008 and 2009 reduced because of
the 2008 recession.
I would recommend that the company continues to expand especially in countries with
good tax rates as well as high economic growth. I would also recommend that the company
practice good cost cutting measures so as to minimize business costs. The company can thus
advertise less in areas where there is already market awareness for its products as well as recue
its employee numbers.
BURGER KING.
References
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Stephen G. Brooks (2011) Producing Security: Multinational Corporations, Globalization, and
the Changing Calculus of Conflict Princeton University Press
Roy Smith, Imad El-Anis, Christopher Farrands (2014) International Political Economy in the
21st Century: Contemporary Issues and Analyses Routledge
Dingha Ngoh Fobete (2013) Multinational Corporation and Third World Development GRIN
Verlag
Andreas Nölke (2014) Multinational Corporations from Emerging Markets: State Capitalism 3.0
Palgrave Macmillan