(FORTUNE Magazine) – SOMETIME over the next 24 hours, while the rest of us merely work, eat, and sleep, McDonald's will open three more shiny-new restaurants. One may be out in a fast-growing suburb of Salt Lake City, another in the pristine downtown of Singapore, and the third in the smoggy bustle of Warsaw, where it will soon be flooded by smartly dressed young Poles hungry for a taste of America. Chances are good that within a year's time each of these stores will be grossing about $1.7 million a year and operating well in the black. And tomorrow? Same thing. Three more stores will open. It wasn't long ago that many predicted McDonald's was doomed to become a lumbering cash cow in a mature industry. As events have turned out, the company has remained the nation's most profitable major retailer over the past ten years, even as the competition has become nimbler. Since 1983, McDonald's profits have more than tripled to almost $1.1 billion on revenues of $7.4 billion and systemwide sales of over $23 billion from over 14,000 stores. Not that some of those predicted age marks aren't starting to show. Operating profits from the U.S. and same-store sales have climbed only slightly over the past several years, and the highly organized McCulture shows signs of becoming too rigid, too steeped in its own orthodoxy to cook up that all-important break-out-of-the-box, home run innovation. Most analysts believe a new hitwich on the order of the Big Mac or the Quarter Pounder will be required to solve McDonald's so-called "menu problem." Whatever problems McDonald's may be having at home, however, are more than offset by its spectacular success abroad. Few of those skeptical about McDonald's in the Eighties were able to foresee that the fast-food giant -- after stumbling in Holland in the 1970s -- would take its act on the road and go global with a vengeance. In 1988 the company had 2,600 foreign stores and $1.8 billion in overseas revenue. Six years later it has 4,700 stores doing $3.4 billion a year. The result: McDonald's today is arguably the most awesome service machine on the planet, and a virtual blueprint for taking a service organization global. While the seers and the management consultant crowd crow that service will become America's next great export, McDonald's is already doing it today, delivering world-standardized food, smiles, value, and cleanliness to every continent except Antarctica. "We are seizing the global marketplace," says James Cantalupo, the raspy- voiced former accountant who heads McDonald's International. ! McDonald's is in the rare and enviable position of possessing a truly global service brand, a name known to hundreds of millions around the world. "Only a few American brands are easy to export," says Caroline Levy of Lehman Brothers. "The recognition level must be very high, and the price point low. That means Coke, Marlboro, Wrigley, and McDonald's." Note: Of Levy's fab four, only McDonald's sells a service, not a packaged good. And if the packaged- goods purveyors are any model, McDonald's untapped potential remains enormous. The company already sells its burgers in 73 countries and pulls in about 45% of its operating income from foreign operations. But global soft drink behemoth Coca-Cola, for instance, sells to 195 countries and brings home 80% of its income from abroad. "It's hard for Americans to understand, but McDonald's is almost heaven-sent to these people," says Tim Fenton, the head of McDonald's Poland, as he gestures toward one of his 17 booming stores. "It's some of the best food around. The service is quick, and people smile. You don't have to pay to use the bathroom. There's air conditioning. The place isn't filled with smoke. We tell you what's in the food. And we want you to bring kids." For all the strength of its brand, what McDonald's really has to export around the globe is that almost intangible, fragile concept -- service. How does it do it? The answer: a collection of surprisingly simple strategies, mostly from the Lost Art School of Management. Here's what's on the syllabus: --Gather your people often for face-to-face meetings to learn from each other. --Put your employees through arduous and repetitive management training. --Form paradigm-busting arrangements with suppliers. --Know a country's culture before you hit the beach. --Hire locals whenever possible. --Maximize autonomy. --Tweak the standard menu only slightly from place to place. --Keep pricing low to build market share. Profits will follow when economies of scale kick in. Of course McDonald's also lends incredible marketing support to its brand, blanketing the world with advertising and promotion. A $1.4 billion annual global budget makes McDonald's the most advertised single brand in the world. Kids, minorities, and the handicapped tug at emotional sleeves in dozens of languages, begging potential customers to "get up and get away." Ronald McDonald, according to some in the company, is more recognizable than Santa Claus. McDonald's slavish devotion to regimentation is also a key, and the company is constantly refining its organization, which is now so complex and far- reaching that one of those James Bond masterminds might envy it. "Never have I seen a company more focused than McDonald's," says Don Keough, a McDonald's board member and retired president of Coca-Cola, a major supplier. "The company is an army with one objective that has never strayed." Driving these zealous troops forward in the hamburger crusades is CEO Mike Quinlan, 49, or "Q," as he is called. (Hmm, maybe there is something to this James Bond thing.) Only the company's third CEO, the carrot-topped Quinlan, who started in the mailroom 31 years ago, wears a mantle passed down from patriarch Ray Kroc and current chairman Fred Turner. While Quinlan is proud of the company's record under his watch, he's more frustrated than anyone by its inability to develop that next big hitwich. So Q has placed a bounty on innovation and is now scouring the globe for winners. "Want to know my definition of insanity?" asks Q. "It's doing the same thing over and over again and expecting different results. If there's anything I try to impart to our people, it's to never be satisfied. That means coming up with new ideas." WHILE MANY of the company's greatest successes, such as the Big Mac and the Egg McMuffin, came from rank-and-file U.S. franchisees, other brainstorms -- mostly operational -- have begun to filter in from overseas. The Dutch created a pre-fab modular store that can be moved over a weekend. The Swedes came up with an enhanced meat freezer. And satellite stores, or low-overhead mini-McDonald's, were invented in high-rent Singapore. "There used to be resistance to ideas from abroad," says Ed Rensi, the portly chief of McDonald's USA. "No more." And nowhere is the spirit of this global burgerpreneurism more evident than in Poland. Five years after the fall of communism, the Poles are busy scrubbing four decades of soot off buildings. New, brightly colored commercial signs, including those of Pizza Hut and Burger King, are cropping up like wild mushrooms. Fenton, McDonald's man in Poland, gazes out over Warsaw from a bar atop the new Marriott hotel and reflects on what he's seen. "When I first came here, two years ago, there were practically no lights. Now look," he says gesturing to the buddingly lit city. "I like this view because you can see all four of the city's McDonald's from here." Nowadays Fenton can take time off to have a Johnnie Walker, a pleasant change from when he faced challenges not covered back home at Hamburger U. When he first arrived in Poland, one local official told him he would have to change "that silly logo with those arches." Say what? After a patient explanation on the power and value of trademarks, the apparatchik finally backed off. And for all its brand recognition, McDonald's has to walk a fine line between being perceived as global or local and American. "People are more the same than they are different," says International chief Cantalupo, whose charge it is to sow the company's stores like seed around the world. "I don't think our food is seen as American. It's seen as McDonald's." A lot of very intense preparation before entering a market, including the hiring of local managers, helps make this most American of brands seem pretty local too. Before Fenton came to Poland, the company planned for 18 months. Locations, real estate, construction, supply, personnel, legal, and government relations were all worked out in advance. Finally, in June 1992, Fenton charged in with a team of 50 from the U.S., Russia, Germany, and Britain. Since then all except Fenton have been replaced by Poles in what McDonald's calls a sunset program. Now Poles don't just want to eat at McDonald's; they want to work there too. With the average annual income in Poland around $2,000, counter jobs paying $1.70 an hour -- or about 75% above that average -- are snapped up. No wonder counter kids appear to hustle harder than in the U.S. Managerial jobs at $900 a month, with a stint at Hamburger University in the U.S., are especially coveted. Doesn't this high profile rile the locals who don't get jobs? Isn't McDonald's in danger of being seen as some kind of U.S. culinary imperialist? "The only resistance comes from the same people who didn't want political change in the late 1980s," replies Fenton, as he sits in his Western-style open-architecture office in downtown Warsaw, fingering a brochure that teaches the Poles how to use a drive-in. If the palpable excitement of Fenton's customers is any indication, the hard-liners had better find another capitalist stooge to pick on. It's the first day of school in Warsaw, and kids in new outfits stream into a McDonald's in the shadow of the Ministry of Culture building, a gift from Stalin and an ironic symbol of how quickly change has come to Poland. Fenton, a sturdy meat-and-potatoes guy from upstate New York, beams, frowning only when he uses his Polish to shoo away a ragged gypsy woman who is begging near the store entrance. Fenton's Polish managers are taking to the McDonald's system with only a few small hitches. "The toughest concept to teach has been negotiation," he says, "because under communism there wasn't any. Also, the first year they came to a barbecue at my house in suits. This year I said, 'Anyone wearing a suit gets sent home.'" He also had to suggest, in Pollyanna-like McDonald's fashion, that customers not bring in vodka to drink with their Big Macs. By year-end, Fenton will be running 22 stores, and his operation should have positive operating income, even with prices 25% below those in the U.S. By 1998, Fenton anticipates Poland will have 100 stores, but by then the sun will have set on him, and at his desk will sit a Pole. Each country McDonald's enters presents its own problems -- or opportunities. German law prohibits special promotions like "buy one, get one free" and advertised discounts. Labor unions in France recently accused the company of cheating workers out of overtime pay. Coping with foot-dragging officials sometimes requires McDonald's to take the offensive. In Germany a recent Chinese-food promotion worked so well that the company ran out of spring rolls. "I tried to order more from our supplier in Denmark," explains Hans Griebler, the affable head of purchasing in Germany, "but he told us his company needed permission from the government to work on the weekends. I called the Danish labor minister and got it." That kind of drive to provide service -- which we almost take for granted in the U.S. -- is at the core of what McDonald's offers its overseas customers. Listen to Rolf Kreiner, head of marketing at McDonald's 535-store German operation. "The world is becoming a service society. People are hungry for service, but in many countries they don't get any except at McDonald's. That's why our stores are so crowded. That's why we're ahead." Supplying stores abroad can be a nightmarish exercise in logistics. When McDonald's first enters a country, it often has to import many of its supplies. Then the company tries to source locally as quickly as possible. "Transportation is cheaper when you stay in one country and you don't have to change currency," says vice chairman Jack Greenberg, an easygoing former CPA with Arthur Young and the rare outsider among McDonald's top management (he has only 12 years there). Sometimes the company contracts with local suppliers, with happy results for both parties. A German mustard and mayonnaise company that started with a $100 order some 20 years ago now sells McDonald's $40 million of condiments annually. More frequently, though, McDonald's encourages its domestic suppliers to follow the company abroad. Chicago-based meat supplier OSI Industries has joint ventures in 17 countries, where it works with local companies making McDonald's hamburgers. One such site, a spotless meat plant in postcard-pretty Guenzburg, Bavaria, cranks out some 2.5 million patties a day. Computers mix ground beef to ensure that fat content meets the McDonald's world standard, 20% or less. Young second-generation Turkish women box patties quick-frozen by liquid nitrogen just as their counterparts would in the U.S. The specs and production demands are exacting, and with monthly evaluations, the pressure for quality is constant. Says OSI International President Douglas Gullang: "Meeting McDonald's standards is a huge challenge. To some it seems insane what we do. But we realize our product isn't just meat; it's service. We've turned a meat plant into a service business." For McDonald's, finding potential business partners around the globe isn't a problem -- rather, the company is swamped with inquiries. Sorting through them is the real challenge. "McDonald's spent years going over dozens of applications before it picked its joint venture partner in Singapore," says Bob Kwan, managing director of the operation in that country. "Of course, I'm happy they chose me." The company prefers partners with connections. One of the heads of its Saudi Arabian operation is a member of the Saudi royal family.

The company also has more than one way of structuring its operations overseas, choosing from several options before it enters a new country. In the European theater, as Q calls it, the company usually runs wholly owned subsidiaries. The thinking is that since these markets resemble the U.S., they can be run in roughly the same way as the domestic business, allowing for some adjustment. Take Holland. (In the early days of overseas expansion, the company would have said, 'Please!') "We put stores in the suburbs like in the U.S.," says Michiel Hiemstra, a director of McDonald's Netherlands. "That didn't work because of different eating patterns. We learned to build downtown." As in the U.S. market, these subsidiaries operate company-owned stores and also license out franchises -- about 70% of the company's stores worldwide are franchised. Snagging one of these franchises ain't easy. Also as in the U.S., potential franchisees slog through a two-year screening process. They must work at a store and go through training before gaining final approval, all for the right to plunk down $45,000 and sign a 20-year contract that guarantees McDonald's a royalty of 4% of sales, plus another 8.5% or more of sales for rent. Add to that 4% of sales for advertising, or over 16 cents of every dollar taken right off the top. But shed no tears for McDonald's operators, who organize themselves into webs of co-ops and service groups; they wind up taking home about $200,000 a year per store. High-volume stores in locales like Warsaw or Moscow can net three times as much. In Asian markets, the company prefers joint ventures, such as the 1,000-plus store operation in Japan headed by eccentric billionaire Den Fujita. These usually fifty-fifty arrangements allow the company to tap into its partner's contacts and local expertise. The company lets such partners negotiate with cumbersome entities such as the Chinese government, which has already allowed McDonald's to open 23 restaurants, with dozens more on the way. McDonald's grabs the standard royalty off the top in these joint ventures, as well as 50% of the bottom line. IN ITS MOST EXOTIC markets -- Saudi Arabia, for example -- the company reduces its risk by putting up no equity capital. It simply licenses the name with strict requirements as to standards and takes an option to buy in later. Repatriating all these earnings and royalties from countries like Oman and New Caledonia is yet another challenge. McDonald's treasury department uses derivatives to hedge in 12 currencies, though in these derivative-phobic days, Greenberg insists it's never to make a trading profit. While other companies increasingly rely on technology to fill in gaps in communication, McDonald's still believes in the power of the good old face-to- face sit-down. The company that helped pioneer advanced point-of-sale computing has no E-mail system at headquarters, and Q doesn't even have a computer in his office. Ergo, no company gathers together more of its people from more places as often as McDonald's. "We constantly get together by region as well as by discipline, such as purchasing, construction, and accounting" says Kwan from Singapore. "We share successes and failures, and we work , together to cut costs." A sampling of a typical month's meetings: an Asian store managers' conference in Sydney, the European purchasing board get- together in London, a worldwide communications conference in Chicago. McDonald's has also globalized its powerhouse real estate operation. For years a clique of managers saw McDonald's more as a real estate company than a fast-food chain, much to Ray Kroc's chagrin. It's easy to see why. The company owns about 9,000 properties, or about 60% of its store locations, making it the world's largest collector of land parcels, totaling some 36 million square feet of space. Book value: $10 billion. Market value: hard to say. One and a half times as much? Today, though, real estate is pretty far down on the list of McDonald's priorities. No. 1 worry: that same old frustration at not finding a breakthrough at home -- the double-digit-growth menu item. And there's no apparent solution in sight. Even Quinlan, a self-described "glass-is-half-full kind of a guy," calls new-product development "disappointing" and concedes that "new products are basically on the back burner." A long-standing, costly pizza project has been "like rolling a snowball uphill," says U.S. chief Rensi. A tableful of other dinner entrees, from pasta to corn on the cob, has also been coldly Sisyphean. "We're focusing on burgers, chicken, and breakfast. That's why people come to McDonald's," says Quinlan. But in the face of sluggish domestic growth, that focus has begun to look a bit like rationalization. To create a real winner, McDonald's may need to do something incredibly radical in its culture, like buying someone else's concept or hiring outsiders to come up with the next Quarter Pounder. So far, the closest thing to a Nineties hit has been the Extra Value Meal, a discounted package of burger, fries, and drink that offsets its lower margins with increased volume. But its success just shows what a tough game of nickel and dime the U.S. fast-food market has become. McDonald's now has one store per 25,000 people in the U.S., and the company takes great pains not to cannibalize an existing store's volume when it opens another restaurant stateside, as it did 324 times last year. Grand Metropolitan's Burger King and PepsiCo's Taco Bell, KFC, and Pizza Hut are fierce, moneyed competitors that have all won battles against McDonald's. So, Mike Quinlan, would you buy McDonald's stock if the company had only domestic operations? "Of course I would, you nut!" But why? Jim Adamson, CEO of Burger King, has an answer: "There are still so many new points of distribution out there -- hospitals, sports arenas, and roadways. There's room for double-digit domestic growth in our business." McDonald's is catching up, especially to Taco Bell, in the search for innovative locations. Examples: a train in Germany, an English Channel ferry, and an ice-skating rink in Wisconsin. It will also open over 500 smaller satellite stores in places like New York City and Brazil this year. Q is adamant: "I'm less concerned about saturation than at any point in my career. We only have a 21% share of the U.S. quick-serve restaurant business. Meanwhile we continue to lower costs, which allows us to penetrate smaller and smaller markets. We're vacuuming our P&L." Example: Standardizing kitchen equipment last year cut about $40,000 from the cost of equipping a restaurant. One place McDonald's isn't cutting corners is employee training. Every geeky, pimply-faced burger flipper from Taipei to Topeka is put through the paces for two to three days. More than a few of us remember those lessons. The company claims the first job of one out of every 15 Americans was at a McDonald's. For McDonald's managers the real business of training means matriculating at Hamburger University at company headquarters in Oak Brook, Illinois, just west of Chicago. Once mostly the butt of jokes, Hamburger U. today is -- and hold the guffaws -- akin to a crash executive MBA program. Procter & Gamble, Amoco, and the Red Cross all have visited recently looking for ways to improve their training. Fourteen times a year, 200 McDonald's managers with two to five years of experience arrive from 72 countries for the intensive two-week program. Simultaneous translation into 20 languages is provided for courses such as Building Market Share and Staffing and Retention II. Team building, just in time, close to your customer, TQM -- called MQM here -- it's been taught at HU for years. Some HU training borders on axiomatic: "Don't say: 'Juan! Clean up the parking lot!' Ask: 'Juan, would you please sweep up the parking lot?'" Other exercises are more challenging. Students are yanked out of classes and confronted in role-playing scenarios: "Hey, Jack, my hamburger tastes like it was made by Du Pont! What are you going to do about it?" Some 50,000 McDonald's employees, franchisees, and suppliers have received diplomas. Whoa -- suppliers you say? Yes, suppliers. In fact, many of today's cozy-up- to-your-supplier companies, such as Wal-Mart, learned from McDonald's. Why let the guys with the goods in on the system? Because "McDonaldizing" suppliers helps them meet company specs -- though McDonald's suppliers are a unique animal to begin with. How about this for different? Many suppliers have open-book relationships in which McDonald's sets their profits. Some of them have McDonald's as their only customer, yet they have no contract with the company. Though McDonald's does some business with companies like H.J. Heinz, Kraft General Foods, and Coca-Cola (see box), it buys a majority of its food from this shadow industry of formerly small companies whose collective annual sales now total around $3 billion. Meat supplier OSI Industries, distributor Martin Brower, and French-fry king J.R. Simplot Co. have grown from mom and pop operations to $500 million dollarplus companies mostly based on sales to McDonald's. Kroc didn't like buying from big food companies because they weren't responsive enough. According to John Love, author of McDonald's: Behind the Arches, Kraft once had McDonald's entire cheese business but lost three-quarters of it because it wouldn't make a sharper cheddar. McDonald's gravitated in its earlier days toward small, hungry companies like J.R. Simplot's, then a mere sprout of an Idaho potato company. Simplot, today 85, remembers hooking up with Kroc back in 1967. "I went down to Santa Barbara and visited with Ray. He told me what he needed in a potato plant. I said, 'You got it.' We shook hands, and that was it -- no price mentioned. McDonald's doesn't shop for the lowest price; they want service. They prize the relationship." Don't kid yourself, though. With suppliers or anyone else, McDonald's knows how to throw its weight around. But in the past, McDonald's has learned all too well what it's like to play the bad guy and today works like hell -- more than any other large consumer company -- to avoid wearing the black hat. The company took it on the chin as a symbol of the system in the Sixties. When it was accused of racism, sexism, anti-environmentalism, it reacted defensively, exacerbating the situation. No more. "Now we try to be ahead of the curve," says the head of communications, Dick Starmann. Three years ago the company stopped using bleached white bags. "Half the scientific community said nay on white bags, the other half said yea, but customers didn't want them, so we got rid of them," says Starmann. A pilot | program in Holland that recycles 100% of the waste at each store may be expanded to other countries.

THIS YEAR the company banned smoking in company-owned U.S. stores and suggested that franchisees do the same. "There was no immediate pressure from customers, but we could see it coming," says Starmann. The tobacco companies were furious and demanded a sit-down. McDonald's said no. The latest charge: using beef from cattle that grazed in pastures cleared from the rain forest. "We don't serve any," says Starmann, who eagerly pulls a policy statement out of his briefcase. Even the staple McDonald's food is less unhealthy than it was ten years ago. "McDonald's has gotten better," says industry critic Michael Jacobson, executive director of the Center for Science in the Public Interest and co- author of Fast-Food Guide, "though much of the improvement is in the addition of healthier foods like cereal, a no-fat bran muffin, salads, carrots, and celery, and low-fat McLean burgers." According to Jacobson's work, McDonald's burgers generally contain fewer calories and less fat and sodium than comparable sandwiches from Burger King or Wendy's. But a steady diet of McDonald's Biscuit with Sausage & Egg might tie up traffic on the aortal highway in short order. Overseas, besides serving localized fast food -- like black currant shakes in Poland -- McDonald's offers more body-friendly items like salads with shrimp in Germany and veggie burgers in Holland. "Yes, people are interested in healthier food," says Quinlan, who is sensitive about his own double chin, "but they are most interested in taste, convenience, and value." And to those who say McDonald's is simply serving up junk to the world? "I say, 'Wake up, pal, you're not on the playing field.' We're giving customers what they want." It's true that the more Mc Donald's globalizes, the more risks the company takes on. Still, it would take a mighty big log to make it stumble. Ultimately McDonald's isn't going to be hurt by a grandmother in Albuquerque suing over hot spilled coffee, nor Green protests in the Czech Republic, nor penny shortfalls in earnings, nor Burger King, nor PepsiCo. Probably only McDonald's could stop McDonald's. But with all that focus that Don Keough talks about and an army of 840,000 system-wide employees fixated on its operations, McDonald's will in all likelihood still be teaching everyone else a thing or two about service into the next century. The best indication of this probably comes from talking to those throughout the McDonald's system -- from Q on down. In those conversations you never get the feeling that there's any sense of victory within McDonald's. These folks are still at war -- on all fronts.