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May 2, 2008: 8:48 AM EDT
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Big Mac's local flavor

Once vilified for pushing America on the world, McDonald's lets countries invent their own buns, bags, and business practices. Now some ideas are making their way back home.

By Peter Gumbel, Europe Editor

Denis Hennequin, the president of McDonald's Europe and a 23-year company veteran who ran the operations in France from 1996 to 2004.

(Fortune Magazine) -- The next time you're in Brazil, say, or Italy or Portugal, and feeling like a taste of Americana, stop off at a local McDonald's restaurant and order a Big Tasty burger. As the name suggests, it's a giant sandwich consisting of a 5.5-ounce beef patty slathered in smoky barbecue sauce. Once you include the square-chopped lettuce, tomatoes, and three slices of cheese, it all adds up to a whopping 840 calories.

Just don't try looking for the Big Tasty in the United States, McDonald's home territory. It's not on sale there. In fact, there's precious little about the burger that's American at all, other than the fact that it's sold by McDonald's. It was dreamed up in a test kitchen in Germany and then tweaked, trialed, and launched in Sweden in August 2003. It proved so successful there - "It's one of our biggest sellers ever," says Susanne Rydjer, a Swedish McDonald's marketing executive - that restaurants in other parts of Europe quickly picked it up. Latin America and Australia followed suit. (It is no relation to the American Big N' Tasty, which is smaller and less successful.)

On its path to becoming a hit, the Big Tasty has become something much larger than a giant burger: It is a prime example of how, in this era of global business, the tail can end up wagging the dog. McDonald's worldwide operations are now far bigger than its U.S. domestic business, and they are growing substantially faster. And as the world has become the principal revenue engine for the company, it has turned this iconic American brand upside down, transforming the way it does business.

These days new ideas can - and frequently do- come from anywhere. The Big Tasty didn't make it to the United States (more about that later), but plenty of other things that originated thousands of miles away from Oak Brook, Ill., where the company is based, have either already done so or are about to.

Fortune has learned that later this year McDonald's (MCD, Fortune 500) will roll out new wrappers, boxes, and bags in its U.S. restaurants that will tout the quality of its products. The company's head of European operations had the idea and pushed hard to implement it, and his designers had a big hand in the final outcome. Also on their way across the Atlantic are "artisan breads" - baguette-style sandwich rolls long used by McDonald's in France and Italy that the company will promote in the United States as a premium product. Then there's coffee. While McDonald's in North America has only recently started trying to steal business from Starbucks (SBUX, Fortune 500), the roots of its coffee strategy are to be found in Australia, which began serving premium coffee years ago and has since become the company's global coffee laboratory.

Three-legged stool

McDonald's has never been a rigidly hierarchical organization. Founder Ray Kroc liked to describe it as a "three-legged stool" consisting of the company itself, its suppliers, and its franchisees, who run the majority of restaurants. Still, says McDonald's president Ralph Alvarez, "when we first started to grow internationally, we were really just replicating what we had in the U.S., and for years it served us well." He recalls the way the company at one point even used to export American tiles to countries like Spain and Italy that are world famous for their own ceramics. For years senior management overseas was predictably composed of expatriate Americans. And if anything new was invented, it was done at a warehouse in Oak Brook that remains McDonald's main R&D center.

Then, like many others whose global operations have reached critical mass, McDonald's discovered that its old way of doing things just wasn't adequate for the new challenges. In some prime overseas markets, including France and Britain, the brand was faltering badly and losing an image battle. It wasn't doing brilliantly in the United States either. So McDonald's changed tack. In came a new mantra - "freedom within a framework" - which gives regional and national McDonald's far more leeway to make their own decisions. "We decentralized our business model," Alvarez says. "Now you'll find very few Americans running the business except in the U.S. Instead, we're leveraging the power of that decentralized model."

As it tries to adjust, McDonald's is in good company. It's one of a growing number of Fortune 500 companies whose primary source of growth and profitability is outside the United States. Exxon Mobil (XOM, Fortune 500), Intel (INTC, Fortune 500), Coca-Cola (KO, Fortune 500), IBM (IBM, Fortune 500), Procter & Gamble, Caterpillar, Ford, Pfizer - these and other American household names already derive substantially more than half their revenue from abroad. Indeed, at a time the U.S. economy is flagging, the dollar is plunging, and new markets are opening up around the world, this dependence on non-American business will probably grow even stronger. "There's real pressure for international sales to provide the growth, and that means there's a real focus on how to grow and expand internationally," says Mark Spelman, a global strategist at consulting firm Accenture in London.

Going 'glo-cal'

Yet, as McDonald's has been discovering, running a successful global company requires some pretty significant changes in corporate behavior. Going "glo-cal," as management consultants like to call it, requires striking a balance between managing a brand on a consistent worldwide basis and appealing to differing consumer tastes in dozens of markets. It means delegating authority and letting things happen; it is not a job for centralizing control freaks. At the same time, it requires some clear rules about where the limits lie.

At McDonald's, country managers run their own advertising campaigns but aren't allowed to fiddle with the corporate logo. Consumer companies have long understood the importance of tailoring products to local tastes. Google and Yahoo, for example, wouldn't have gotten off the ground abroad if they hadn't translated their services into local languages and provided country-specific content.

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