Getting Into Harvard Easier Than McDonald's University in China

Zhou Xiaobu runs from one end of a table to another, grasping a piece of a puzzle she and her team are assembling as part of a leadership training exercise for McDonald’s Corp. managers.

“Go, go, go,” yells their Taiwanese teacher, exhorting them to work for the prize, a box of Danish butter cookies, for being the first to build the company’s trademark Golden Arches. Above their heads is a sign that reads: “Learning today, leading tomorrow.” The thick green binders stuffed with paperwork on each of the 31 students’ desks indicate the next activity may not be as rousing.

This is McDonald’s Hamburger University in China, and it can be harder to get into than Harvard.

Zhou’s classroom, with its gray walls and carpet, is one of seven in the management training center occupying the 20th floor of the 28-story building on the outskirts of Shanghai that houses McDonald’s China headquarters. The art consists of pictures of McDonald’s products and equipment, such as a milk- shake maker from the 1950s.

The 1,565 square meter (16,846 square foot) facility doesn’t have a pool or a gym and its one-room library holds books with titles such as “Just Listen,” “Personal Accountability” and “None Of Us Is As Good As All Of Us: How McDonald’s Prospers By Embracing Inclusion and Diversity.”

Selection Rate

There’s a coffee machine in the corridor. There’s no cafeteria, although students and staff can order food delivered to the office pantry one floor down.

“I’m thrilled and proud to attend Hamburger University,” said Zhou, who in 2007 started as a management trainee in the central Chinese city of Changsha, a job for which she and seven others were among 1,000 applicants. That’s a selection rate of less than 1 percent, lower than Harvard University’s record low acceptance rate last year of about 7 percent, according to the school’s official newspaper.

To get to the training center, Zhou competed with 43 other workers at her store to be made first assistant manager. She didn’t pay any tuition; it cost McDonald’s about 10,000 yuan ($1,518) to put her through the five-day course.

The world’s biggest restaurant operator moved the training center from Hong Kong last year as it expands in mainland China, where its market share is less than half of KFC owner Yum! Brands Inc. McDonald’s opened a record 165 restaurants in 2010 and will accelerate that growth this year to meet its goal of 1,000 new outlets in the four years through 2013.

Expansion May Accelerate

“They are preparing a base that will allow them to accelerate that rate of expansion,” said Peter Jankovskis, co- chief investment officer of Oakbrook Investments LLC, which holds about 300,000 McDonald’s shares. “They may well have announced a conservative store opening target and their true plan is much greater.”

The school last year trained 1,000 of the almost 70,000 employees McDonald’s has in mainland China, a region that doesn’t include Hong Kong, Macau or Taiwan.

Another 4,000 people will attend classes at the training center through 2014, said Susanna Li, the head of the training center. The classrooms are equipped for simultaneous translation into English, Mandarin and Cantonese to accommodate students from Hong Kong and teachers from overseas.

“We’ll make sure the people pipeline is ready,” Li said. “Having the school here in China helps us provide training faster than sending students to Hong Kong.”

Trailing Yum

Total sales for fast-food chains in China rose 12 percent last year to 60 billion yuan, according to London-based researcher Euromonitor International. Yum’s restaurants, which include Pizza Huts as well as KFCs serving fried chicken alongside Chinese dishes, accounted for 40 percent while McDonald’s had 16 percent, the researcher said.

Oak Brook, Illinois-based McDonald’s has 1,300 stores in China and aims to have 2,000 by 2013. Yum has 3,700 restaurants in China, where it earned 44 percent of its $1.33 billion operating income in the first three quarters of last year.

Yum’s market value surged 40 percent last year, compared with McDonald’s 23 percent gain.

McDonald’s plans to increase its investment in China by 40 percent this year after boosting spending in the world’s most- populous nation by 25 percent in 2010, it said last month, without providing dollar figures. Sales at McDonald’s stores in China open more than a year grew 12.7 percent in the three months ended September, more than double the global average. In the quarter ended December, sales growth was 5.2 percent compared with a global average of 5 percent.

Nurturing Talent

The training center in Shanghai differs from those in six other locations around the world in that it also offers senior management courses, Li said. Running the school, which has seven teachers, will cost McDonald’s 150 million yuan in the five years through 2014, she said.

McDonald’s set up its first Hamburger University in Elk Grove Village, Illinois, in 1961 to train managers as well as franchise owners.

“It’s certainly possible to move up through the hierarchy,” said Jankovskis of Lisle, Illinois-based Oakbrook, which manages more than $2.6 billion. “Many people do consider fast food in general is kind of a dead end, but in the case of McDonald’s, they have a very strong professional organization.”

McDonald’s Chief Executive Officer Jim Skinner, who was paid $17.6 million in 2009, started as a management trainee in 1971 after serving in the Navy, according to the company’s website.

Unemployed Graduates

Getting into the school is competitive because more than 26 percent of China’s 6.3 million college graduates were unemployed as of July 1, according to the Ministry of Education. That compares with a 4.2 percent unemployment rate for China’s urban workforce, according to data compiled by Bloomberg.

Companies face rising labor costs in China, where annual economic growth has averaged 10 percent over the past three decades. Urban Chinese average yearly wages surged to 32,244 yuan in 2009 from 8,319 yuan in 1999.

Sun Ying, 25, started working part-time for McDonald’s in 2005 during her freshman year as a tourism management major at East China Normal University. When she graduated in 2008, she opted to work full-time for the hamburger chain instead of applying for a job at a bank as her father advised.

The restaurant chain “offers many career opportunities,” said Sun, who in April was made store manager at McDonald’s Xinhualian store in Shanghai’s central Huaihai Road. “I’m even happier to continue to grow with my team,” said Sun, who’s seen the number of people she supervises grow to 55 from 45 since her promotion.

Not Banking

McDonald’s Hamburger University in Shanghai and its training programs are meant to address its “No. 1 challenge,” which is to recruit and retain skilled workers, said Joel Silverstein, president of Hong Kong-based restaurant consultants East West Hospitality Group Ltd.

“It’s getting harder and harder to hire employees in the food-service business,” he said. “The main reason that McDonald’s put up the Hamburger University is to professionalize the sector, making it easier to recruit better people.”

Sun, the store manager in Shanghai, said she’s due for more training next month: a one-week course on “business leadership practices.” Her next goal is to be made operations consultant, which involves supervising a group of stores.

“Now my father has stopped trying to persuade me to work in banking,” she said.

- Michael Wei and Margaret Conley in Shanghai. Editors: Frank Longid, Bret Okeson

To contact the Bloomberg News staff on this story: Michael Wei in Beijing at mwei13@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

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Photographer: Qilai Shen/Bloomberg

Susanna Li, Dean of McDonald's Corp. Hamburger University's Shanghai campus, poses for photos at the school in Shanghai.

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Photographer: Qilai Shen/Bloomberg

Susanna Li, Dean of McDonald's Corp. Hamburger University's Shanghai campus, poses for photos at the school in Shanghai. Close

Susanna Li, Dean of McDonald's Corp. Hamburger University's Shanghai campus, poses for photos at the school in Shanghai.

Photographer: Qilai Shen/Bloomberg

Students walk past a statue of Ronald McDonald at the McDonald's Corp. Hamburger University in Shanghai. Close

Students walk past a statue of Ronald McDonald at the McDonald's Corp. Hamburger University in Shanghai.

Photographer: Qilai Shen/Bloomberg

Students work together to put together a puzzle during a management training class at the McDonald's Corp. Hamburger University in Shanghai. Close

Students work together to put together a puzzle during a management training class at the McDonald's Corp. Hamburger... Read More

Photographer: Qilai Shen/Bloomberg

Inspirational leadership books sit on a shelf at the McDonald's Corp. Hamburger University in Shanghai. Close

Inspirational leadership books sit on a shelf at the McDonald's Corp. Hamburger University in Shanghai.

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