the Economic Environment - Big Macs updated 2014 Aug 5

this web page is refered to in the text Global Human Resource Management in Global Business Today Hill, McKaig ... and Richardson	....
		2nd Edition	3rd Edition	4th Edition

In a number of international business textbooks an example of rapid changes in the economic environment
is the establishing of McDonalds in Moscow after the period of Glasnost and its effect on the Russian economy.

formerlyat  www.mcdonalds.com/countries/russia/russia.html McDonald's Pushkin Square restaurant Since opening in 1990, McDonald's now operates 79 restaurants in Russia.

Many people in Toronto know that George A. Cohon, who ran McDonald's in Canada, is the one that opened up McDonald's in Russia and serves as Senior Chairman, McDonald's in Russia.

Contact made w Ron Christianson, Corporate Communications Manager, McDonald's Restaurants of Canada Limited, June 2005.
Copies of emails kept in the permissions binder.
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McDonald's in Russia - some opinions

In the 4th week of Sept 2005, a student in MGTC44, Victoria Z.,  commented that Americans like to think that McDonald's in Russia is identified in the public mind with glasnost and perestroika (policies of openness and restructuring) under Mikhail Gorbachev, but Victoria found tons of negative information and some interesting posters and logos, like the one featured to the left.

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Victoria says  "In fact, Mcdonald's is a symbol of America and capitalism at its worst in the minds of many Russians. When war in Iraq started somebody wrote on the walls of McDonald's in Moscow: "Peace to Iraq, war to McDonalds".

pic supplied by Victoria

In some texts there is mention that nominal exchange rates (rates adjusted for inflation) are not often a good indicator of the international differences between economies. It is explained that there is a disparate price of a Big Mac in Russia and the U.S.A. This difficulty (and the use of comparing Big Macs) became well known among international business people so it was decided that a serious discussion could be made using the Big Mac - therefore the origins of the Hamburger Standard.
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The Economist magazine took up the challenge and for several years produced a chart showing the price of a Big Mac in the countries of the world.
A simplisitic version of the chart is reproduced below.

 http://www.oanda.com/products/bigmac/bigmac.shtml (current listing)

Country	BigMac Price
	in Local Currency	in US dollars
United States	$2.43	-
Argentina	Peso 2.50	1.03
Brazil	Real2.95	1.21
Britain	£1.90	0.78
Canada	C$2.99	1.23
China	Yuan9.90	4.07
Euro area	€2.52	0.97
France	FFr17.50	7.20
Germany	DM 4.95	2.04
Hong Kong	HK$10.2	4.20
Indonesia	Rupiah14,500	5,967
Japan	¥294	121
Mexico	Peso19.9	8.19
Russia	Rouble33.50	13.79
Singapore	s$3.20	1.32
South Korea	Won3,000	1,235
Switzerland	SFr5.90	2.43
Taiwan	NT$70.0	28.8

When last checked in June 2005, this website www.oanda.comstill had a version of the chart for viewing
 http://www.oanda.com/products/bigmac/bigmac.shtml
(MGTC44 students are provided this info FYI, you are not expected to be tested on this)

 

McDonald's in Hong Kong

In the 2nd week of Jan 2010, MGTC44 student Wallace C. at UTSC sent an interesting email talking about his experiences buying a Big Mac in Hong Kong and how he didn't think the BIG MAC chart was quite accurate. Wallace explains I was on your website earlier today just browsing around and there was this McDonald's page that caught my eye. Having traveled to various parts of the world and being a big fan of fast food I decided to take a look at the prices of Big Macs in various countries, starting with Hong Kong, where I was born and travel to frequently. To my surprise a Big Mac was listed at $4.20 USD! I believe there was something wrong with this, as I had been back to Hong Kong during 2005 and it did not cost me $4.20USD to have a Big Mac, so I looked up the exchange rate of HKD vs USD. I had realized that in 1998-2005 that 1 USD was about 7.80 HKD and in May 2005, something known as the Linked Exchange System Rate was introduced which had 1 USD set at upper and lower limits of $7.75-$7.85 HKD. So if a Big Mac was around $10.2 HKD it would be approximately $1.31 USD.

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Wallace notes the 2009 figures can be seen for the Big Mac, according to 2009 exchange rates, by clicking on the screen capture to the left.  www.economist.com/markets/bigmac/

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McDonald's in Beijing

In the 1st week of June 2010, MGTC44 student Jonathan S. at UTSC sent an interesting email talking about his experiences buying a Big Mac in Beijing and how he ALSO didn't think the BIG MAC chart was quite accurate. Jonathan's helpful comments but the price of the Chinese Big Mac into the context of wages for the McDonald's employees in China. Jonathan explains We talked about the Big Mac Index during our lecture last week. I would like to point out a little research I did during my studies at Beijing. At the time (2008), a regular McDonald meal was at least 30 RMB (Around $5 CAD). I asked an employee at McDonalds how much they earned per hour. The response was 7 RMB. This means, they have to work at least 4 hours to afford a meal at McDonalds in China! Comparing to the Canadian counterpart, minimum wage at the time should be around $10.25 CAD. The Canadian McDonald meal costs on average around $5. In other words, it takes an employee half an hour of work to receive a meal from McDonalds in Canada.    It is important that people should view the working time-based Big Mac Index to truly account for the real purchasing power of the employees within the country. UBS Wealth Management actually expanded this idea to include this. This points out the different market that McDonald is trying to target.  Jonathan concludes with an interesting observation In China, people who actually eat at fast food restaurant chains are actually the higher class who can afford it. On the other hand, people who eat McDonalds in North America are usually the lower class. WTGR responds I think your analysis Jonathan is very helpful, thanks,  and your comments illustrate the different target market segment that some multi-nationals have overseas vs. their home market..

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from  www.economist.com/node/14288808 data based on European Bank USB

In Aug 2009, "The Economist" updated their Big Mac page with the chart shown to the left which illustrates how many hours a person would have to work to earn a Big Mac in several cities around the world. This chart reflects the comparison theme that student Jonathan was talking about it in his June 2010 email. Titled "An alternative Big Mac index" The new approach to comparing economices and purchasing power is available on the website of "The Economist" magazine at www.economist.com/node/14288808

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Big Macs are cheaper in Toronto than New York "The Economist" chart of March 2009 is out-of-date for March 2011 in the context of the Canada-US dollar exchange rate - we have been hovering equal to, or slightly higher than the US dollar for some time. - and if you take into account that the minimum wage in Ontario is higher than in New York, it would seem reasonable to reverse the position of "Toronto" and "New York" on The Economist's chart - The New York state wage was increased to $7.36 per hour on January 1, 2011 - in the province of Ontario, the minimum wage is $10.25 per hour  www.labour.gov.on.ca/english/es/pubs/guide/minwage.php

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"The Economist" magazine does Social Media!   In the Feb 12th-18th 2011 issue of The Economist (p. 21) there was an appeal to readers to contribute to creating an alternative Big Mac index based on number of hours worked Readers were invited to use Twitter and Facebook to make contributions about how many hours they had to work in different locations worldwide in order to afford a Big Mac.

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In April 2013 student Moosung Lee in MRK460 at Seneca was part of a group that did a class presentation about Starbucks. As part of the presentation they discussed the varying prices of Starbucks products globally. As Starbucks approaches the global brand awareness of McDonald's, it suggests that maybe the BigMac index is not the only fast food brand that can be used to measure the economic environment globally. one source cited for this graphic is  zerohedge.com/news/2013-02-27/starbucks-index-coffee-price-parity which refers to it as "The Stabucks Index - Coffee Price Parity"

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