Won Ton or Burgers?

A common argument against globalisation is that big, multi-national firms will always beat smaller, local ones but provide inferior goods at higher prices. The often-cited example is McDonalds' dominance in the fast food market, and that where ever they are, the local cafes inevitably suffer.

Is that true? With a bit of casual empiricism, I can testify that McDonalds has not dominated the fast food market in Hong Kong. Neither has Pizza Hut or KFC, and Burger King was actually driven out of the market. Why? Hong Kong is (in)famous for its economic freedom. It costs US$25 to obtain a license to open up a restaurant, with waiting time of less than two weeks. Lack of urban planning also means that up-starting restauranteurs have plenty of available locations for their new ventures. Such competition also stops McDonalds from patronising local food - they have to compete and their niche is to provide "American" food! You will never find a McDonalds in Hong Kong serving up Won Ton soup or sweet-and-sour pork.

Big, multi-national companies do dominate in some countries. Hernado de Soto documents the difficulties of setting up a new business in Peru in The Other Path. The immense transaction costs, manifested in waiting around for permits and bribing officials, become a burden for local businesses, but a great opportunity for multi-nationals, where their expertise in cutting through red-tapes and their healthy cash-flow means that they can withstand the high initial fixed costs.

Such issue has now been recognised by The World Bank, which has a site called Doing Business that systematically documents the costs required to set up new businesses in various countries.

The economic restrictions imposed on developing economies by their own local governments often lead to the dominance of big multi-national companies. Bearing that in mind, the restrictions imposed on the multi-nationals might actually be useful for the time being, until the local governments remove their own restrictions.

Comments

[SL]

Thanks to Greg - this post was inspired by the drunken discussion we had on the FSA as the new regulatory body, and its impact on the insurance industry!

[AJE]

You boys sure know how to party!
How did you do in the quiz?

[AJE]

Steve - I don't doubt your casual empiricism, but my intuition would say that since Hong Kong has such a small land mass, rents are at a premium, and there wouldn't be a hefty supply of premises for new restaurants.
Can you point me in the right direction!

[pass random drug test]

This is nice information need to know more

[Secured Loans]

Am I only the person who doesn't like McDonalds?