Here’s How Offshoring Jobs Can Help McDonald’s

As McDonald’s (NYSE:MCD) is working on a turnaround program, improving its menu and using technology to make services more efficient.  The company is also making improvements to its compensation and benefits package for U.S. employees, so as to retain trained staff who can provide better service to customers. Reports suggest that, while higher wages should lead to higher operational cost, the company is now looking to outsource support jobs to cheaper regions such as India to reduce costs.  As part of its $ 500 million cost savings plan, to be implemented by the end of 2017, the company is looking to move support functions including accounting and other services to India. While this will lead to job cuts in the U.S., it should impact McDonald’s profitability and valuation positively as the company achieves its cost savings plan through this initiative

See Our Complete Analysis For McDonald’s Corporation

Optimal Combination Of Better Service With Cost Savings

McDonald’s is focusing on several employee related benefits which have led to both a reduction in its staff turnover and to a consequent improvement in customer satisfaction in the U.S. A well trained and experienced staff can enable the restaurant to improve its customer service; however it comes at a higher cost. Training programs which help shift managers to learn how to coach and motivate crew to deliver a better customer experience.   Increasing compensation to retain staff will have an impact on employee cost, however. McDonald’s strategy to offshore support functions that can be performed from a remote location can work well in this scenario. The company can save substantial costs by offshoring accounting and related functions to India.  Even with higher wages to U.S., employees it can still achieve its cost savings target.

As per our estimates, the EBITDA margin of McDonald’s company operated restaurants will increase moderately from around 18.4% in 2016 to around 18.9% by the end of our forecasting period.

Cost savings will ensure that this increase in margins is achieved. If these margins increase at a faster pace, there can be an upside to our price estimate.

McDonald’s is working on a turnaround strategy and firing all cylinders to improve profitability. While the “All Day Breakfast” and gourmet menu strategy is aimed towards improving sales, offshoring functions will lead to cost savings. We believe all these initiatives will impact profitability positively and work towards the advantage of McDonald’s shareholders.

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