- Identify a potentially attractive target market for the company’s future international expansion strategy. You will be provided with 3 specific countries below to choose from. In order to identify which of these 3 countries represents a potentially attractive target market, you are required to undertake a comparative PESTEL analysis of the macro-environmental factors of the 3 countries.
- Discuss your rationale for the selection of your chosen market. Your rationale should be justified with a more detailed discussion of your PESTEL analysis of the macro-environmental factors of your chosen market which you have presented in the appendix.
- Critically analyse the opportunities and threats in the firm’s industrial environment in your chosen market. Application of a relevant model or framework such as the 5-Forces analysis is required – a SWOT analysis is not acceptable.
- Critically analyse the strengths and weaknesses in the firm’s internal environment which may support or challenge the firm’s expansion into your chosen market. Application of a relevant model or framework such as a VRIO analysis is required – a SWOT analysis is not acceptable.
- Evaluate the various modes of entry available to the firm and recommend – with justification based on the findings of your analyses in the most suitable mode of entry that will enable this strategic international expansion to be a success for the firm.
This report analyses the selection of target market regarding expansion of company Sainsbury in global market. The company is looking for the global expansion of its business activities in the countries Czech Republic, Ireland and Lithuania. It is very crucial for the company to do research about the marketing environment of the countries in which it wants to expand its business activities before entering in that market. First of all it is necessary to understand the background of the company. Sainsbury is the UK based supermarket which has 16.9% market share in UK supermarket industry. The company was established in 1869 in Drury Lane, London. In present time, Sainsbury used to become the largest grocery retail in the market. The supermarket is providing service to more than 11 million people having 463 stores in all over UK. Among the total stores, around 60% of stores are located in the main area of the country’s Centre town (Sainsbury plc, 2015). The main objective of the company is to earn maximum profit and because of this it is operating its business activities in the private sector. The company used to operate its business activities in the wide range of grocery and food products like baked bread; fish counters restaurants and petrol stations, coffee shop. Now the company is trying to expand its market operations in those three countries. In the last section, this report provides some recommendations for the company to grow in the international market.
Ireland is one of the most wanted locations for UK retailers who are looking to expand their business globally, as consumer here shows insatiable wants for UK products. Property consultants CBRE report shows that Ireland is the 10th most wanted location for UK retailers. Ireland is one of the most open and export driven economies in the world with a GDP of $243 billion in 2015. Ireland remains a rich country and a net exporting nation with a GDP of $44,084 per capita on the back of recovering economy.In 2015 GDP in Ireland increased by an underlying 7.8% that is making Ireland the best performing economy in the EU.
Due to increase in demand and exports Ireland’s economy is forecast to increase by 3% in 2018. Job creation is the priority for Irish government with current unemployment under 8% as compared to 15.1% in 2012. The UK and Ireland has close cultural relations and long term political, economic and commercial relations. The UK and Ireland trade and investment relationship is important in terms of international standards, and is particularly significant relative to country’s population of 4.67 million people. UK companies like Sainsbury can take advantage that Ireland is the only European market which is a member of EU also with the advantage of English speaking. Ireland is the largest English speaking country in the EU which is very beneficial to attract customers and it lends to increase in chances of getting success.Continued economic recovery of Ireland is expected to increase in demand for UK products and services. Ireland is favorable market for UK Small and Medium enterprises which are seeking to export for the first time into Europe. The Irish government is also trying to increase its global competitiveness by making Ireland as a center for high value research and development. There is lot of opportunities for UK companies to enter into business agreements with Irish companies mainly in biotechnology, medical services, ICT etc.UK goods are considered as of high quality and thus provide better demand for these products in the market of Ireland (Leibold & Voelpel, 2006).
Market Analysis of Ireland
British and Irish people can work legally in Ireland because of no worker exchange. Companies of UK can enter into Ireland because of common travel area. The Irish government is not so strict in price matters. It means that there is no legislation regarding the maximum and minimum price of the products. This allows any company like Sainsbury to have flexibility in pricing its products. The most important part of Ireland economic policy is that it is based on social partnership which means neo-corporatist set of auxiliary pay pacts between any kind of employers, trade unions, government etc. Ireland becomes the first country in the world to ban smoking at the workplaces. Ireland is rich in transport system. It has 3 international airports and Aer Lingus is the national airline. The road network of the country is managed by the national authorities or even by the local authorities. One of the most important points to mention is that Ireland is considered as one of the most expensive country of Europe (Needle, 2010).
So there are some benefits for Sainsbury while expanding its business in Ireland-
The Irish economy is mainly depends on trade. Many companies want to set up their business in Ireland because of competitive corporate tax rates and short tax treaty network. The advanced infrastructure and the country’s highly educated workforce is also the reason of attraction for the companies. Ireland economy is expected to grow by 3.4% in 2017.
Due to ongoing economic fundamentals and commitment to open market policies, Ireland is ranked 9th on the 2017 index of economic freedom. According to the Global Competitiveness index report Ireland’s economy is recovering since last recession in 2009. The country is also the best performer in European Union for last three years.
The World Economic Forum ranks Ireland as 23rd in the global competitive index because of its infrastructure, macroeconomic environment, financial market development, market size and its competitiveness which are enhancing its performance globally. All these points show that Ireland is good market for UK companies like Sainsbury because of its infrastructure, demand, favorable competitive business environments and its liberal trade policies.
The customer’s power in Irish retail market is high. It has proved since the recession started, customers of Irish market have begun to purchase branded products at discounted value rather than buying expensive products. It will increase the profitability of Sainsbury business. It will also help to follow product range and environment to suit the local retail market of Ireland. Discounted offers will help the Sainsbury to control and retain their customer’s satisfaction and to meet consumer’s needs. It has been considered that customers are more attracted towards the low prices. Availability of online shopping facilities also helps in lowering the switching cost of the product so the customer can easily select the product according to their preferences (Armstrong & Cunningham, 2012).
Benefits for Sainsbury expanding in Ireland
It can be seen that that suppliers are mainly connected with food and grocery retailers in Ireland and are losing their business contracts with large supermarkets like Sainsbury. Therefore the positions of supermarkets like Sainsbury are strengthening in the Ireland market. By negotiating with the suppliers in the positive manner, company will be able to make the prices of products lowest for the customers. Sainsbury will use its buying power to pay low price as possible to its suppliers.
Competition is very powerful in retail industry. Sainsbury hast to face a lot of competition from its competitors like Dunnes Stores, Lidl and Aldi .The market shares of these German companies is continuously increasing. Sainsbury has to adopt effective marketing techniques in order to combat with its competitors and to attract its customers by providing better services to its customers as compared to its competitors.so the threat of competitive rivalry is high in the retail market of Ireland. Sainsbury has to face competition from its direct competitors like Tesco, Morrisons, Asda etc. It is need to be highlighted that Asdais one of the major competitor for Sainsbury with market share of 16.6% and market share of Morrisons is11.6%. These increasing market shares from competitors are threatening Sainsbury’s market share position (Turnbull & Valla, 2013).
There are many substitutes available in today’s market for the products offered by the Sainsbury. German giants like Lidli and Aldi are one of it. Consumer’s preferences of Irish market are already shifted to these products because of attracting prices and low switching costs. To compete with these companies, Sainsbury hast to adopt effective pricing methods. Products of Sainsbury is also substituted by Irish retailers like Dunnes Stores, Superquinnwich is usually supported by Irish nationals.The threat of substitutes in retail market is low in food items and other retail products. In retail market the substitutes of many retailers are small chains stores which are not threat to supermarket like Sainsbury hat will provide quality products at reasonable prices. However, threat of non- food items is quite high for Sainsbury (Orsingher, Marzocchi & Valentini, 2011).
It is very difficult for a new entrant to enter into the market because of large fixed costs and highly developed supply chain. A new entrant which is trying to enter in the retail market has to pass many barriers to compete against existing supermarkets. There is also the fear of replacing existing products or services in the market.Major brands that have already existed in retail market and offer competition to Sainsbury are Tesco, Asda, Morrisons etc. so new entrants have to produce quality products at reasonable prices (Needle, 2010).
Threats for Sainsbury in Ireland
So on the basis of above analysis, it can be seen that there are some opportunities as well as threats for the Sainsbury in the Ireland market.
- Due to increasing demand for retail products, the industry is quickly growing in Ireland. The sector helps in growing large local markets as well as foreign markets. This means that new companies can enter into the industry and easily establish their businesses.
- Now days, people are more interested in ICT-related products. In short, ICT can be found everywhere in Ireland. Companies like Sainsbury can easily make profit by using information and communication technology.
- Now days, awareness about environmental protection and ill effects of human activities on environment is increasing and country like Ireland has more concern about its environment. Therefore if companies like Sainsbury has a good background in environmental protection, it will be able to build an effective image in the Ireland’s market which further help in success of business in long term.
- Since Ireland is one of the globally connected countries in the world and has east transport links to Europe, the US and the middle East which provide a great opportunity for the business to extract raw materials as well as selling of products globally (FitzRoy, Hulbert & Ghobadian, 2012).
There are few threats for Sainsbury expected in Ireland’s market are as follows-
- Ireland has highly competitive retail industry. Some of the competitors are TISCO, MORRISONS etc. there is always threat to Sainsbury with its competitors.
- Natural disasters like earthquake, rainfall can also affect company’s performance and can become a major threat.
- Although chances of entry of new competitors is quite low but Sainsbury has to face a little threat from new entrants if the other company is providing better products than Sainsbury.
- Economic and political market of Ireland can also present threats like changes in inflation rate, pricing policy, and change in government lead to change in trade policy are some factors.
But if Sainsbury is continuously analyzing its environmental factors and other threats, it can easily convert its threats into opportunities to get success in Ireland.
VRIO analytical too is the useful tool for the companies to evaluate the internal strengths and weakness. It is helpful in evaluating the available resources in the company. Basically, VRIO analysis is the framework that identifies the resources and capabilities of the company. so, there are main four questions in the VRIO framework and those are mainly the question of value, the question of rarity, the question of imitate, and the question of organization. These questions are important for the company Sainsbury to evaluate the potential competitive advantage. The VRIO analysis is very important to analyze the effectiveness and competitiveness of the company in the operating market (Grant & Jordan, 2015). As in respect to Sainsbury, the analysis indicates many important core competencies of the company to run the business effectively. The assessment of the competitive sources by VRIO analysis can be described as follows:
The question of value: This specified question of the value identifies the competency of the company to provide the value to the customers by the provided products and services. In case of the company Sainsbury, the analysis indicates there are some major sources of competitive advantage to achieve the value in the business operations. The major sources include highly reputed infrastructure in the business which allows the company to get opportunities of growth in the retail sector across the world. So, in terms of value factor, the resources available in the company are highly effective to achieve the overall value in the business processes. Along with this, the human resources are also very effective and talented and this is the evidence from the fact that the offered retail products are effective enough in attracting the customers. This reveals that competitive advantage in terms of quality of human resources and effective infrastructure are important to achieve the higher values in the company (Boone & Kurtz, 2013).
The question of rarity: The question rarity analyze that the competitive advantage is gained by the company is rare or is it easily available for the competitors. The competitive advantage in the organization will be highly effective if it is rarely available in the operating market. In case of Sainsbury, the analysis indicates that the company has competitive advantage in terms of brand reputation as the best company in retail sector. In this sector, the competitiveness is highly rare because it is not possible for the new entrants to establish good reputation like Sainsbury in all over the world. So, the question of rarity satisfies the competitiveness of Sainsbury and it improves the effectiveness level of competitive advantage with the company
VRIO framework for Sainsbury
The question of imitate: This question analyzes whether the competency achieved by the company is imitable by others or not. The competency achieved by the company will be highly effective if it cannot be copied by other companies. In case of Sainsbury, the analysis indicates that the core competency of the company is difficult to copy by others as the company has established its brand reputation of being superior company in the retail market. The established reputation of the company of long years by Sainsbury is impossible to imitate. Sainsbury is popular for the high quality retail products in all over the world. The company has higher level of acceptance among the customers and it is difficult for any new entrants or other competitor to build such image among the competitors so, it is highly difficult to imitate the offerings provided by Sainsbury to the customers (Sanders & Wood, 2014).
The question of organization: This is the final question of VRIO analysis framework. This question is about the organization of valuable resources in the company to achieve higher level of growth and success in the market. Based on the performance analysis of Sainsbury, it is analyzed that the company has higher managerial effectiveness by which the company is able to achieve the leading position in all over the world. With the significant level of reputation and growth in the retail market, Sainsbury indicates that the organization of resources in the company is performing in the effective manner. The core competencies and resources of the company are effectively organized in Sainsbury. This is the prime contributing factor to achieve high level of success in the operating market.
So, by the above analysis it can be said that the company Sainsbury is doing well in retail sector. The company has effective resources and core competency which is helpful for the company to achieve success and growth in the operating market. But there is the issue that company does not have new policies with the change of time to achieve high level of growth.
By the above analysis, it is clear that Ireland is the suitable country for the retail business expansion of Sainsbury. Ireland has effective business environment for the retail business. So, before entering in the new market, it is important for the company to analyze the various modes of entries. It is crucial for the company to get success and high level of profit in the overseas market. Although there are many ways to enter in the international market but the use of best method will be helpful for the company to earn maximum profit in the market (David, 2009). In this case, there are four types of modes to enter in the international market i.e. licensing, franchising, joint venture and whole owned subsidy. Although there are variety of ways for the company to enter in foreign market but no one market strategy works in all international market. There will be various factors that will affect the choice of strategy of the company i.e. tariff rates, degree of adaptation of the product, marketing and transportation costs (Peñaloza, Toulouse & Visconti, 2013). Some of the entry modes for Sainsbury to enter in the foreign market are as follows:
This is popular way for the company to enter in the new market. Exporting is basically a traditional and well-established method to reach in the foreign market. In the exporting, it is not necessary that the products are produced in the target country and no investment us required in the foreign production. There are four players required in the exporting process i.e. exporter, importer, government and transport provider. But the issue with this process is that there are various costs associated with the exporting i.e. trade barriers and tariffs, and transportation cost etc. Along with this, the company will be considered as an outsider so, there will be the lack of trust among the customers.
Licensing is an effective arrangement where one company transfers the right to use the products or services to another company. The company establishes the sales program to represent itself in the market. This is a useful strategy if the first company has large market share in the market. Licenses can be related to the marketing or production. In case of Sainsbury, this is the least preferred option as the issue is that it is not easy for the company to find right partner in the Ireland market (Delaney, 2017).
There are five main objectives if the company adopts the process of joint venture to enter in the new market. The objectives include market entry, risk sharing, technology sharing and product development and dealing with the government regulations. There are other benefits i.e. political connections and distribution channels which can be achieved by the mutual sharing of two companies. But in the process of joint venture, there is the risk of ownership, pricing, technology transfer, and capabilities and resources of the local company. As stated above, it is very difficult for the Sainsbury to find the suitable partner for joint venture in the international market. To establish itself successfully in the new market, it is important for the company to stay away from the issues and conflicts. So, joint venture is not suitable for the Sainsbury as the company y has to share profits with another company (Ireland, Hoskisson and Hitt, 2012).
Sainsbury is the wholly owned and run business operating in the country UK so, for the company, owned subsidy will be the better option. Along with this, it is analyzed that the company Sainsbury has not entered in any kind of joint venture earlier. So based on the research, the best mode of entry for Sainsbury would be setting the wholly owned business in the Ireland market. It can be done by the investing in the market or acquiring the local retail company in Ireland. To establish in the global market, investment in the market would be very effective option including proper infrastructure and design as these are the main factors for the success of the business (Buckley & Ghauri, 2015).
There are some recommendations for Sainsbury to enter in the Ireland market. The recommendations are as follows:
- Before entering in the new market, Sainsbury should understand the needs and requirements of the local market and should develop the collaborative approach.
- Company should develop and localize the effective marketing plan to attract the customers in new market,
- Company should communicate the marketing strategies with the employees as well as various stakeholders to get support in the business activities, and
- Company should adopt the differentiation strategy to get competitive advantage in the new market. To deal with the existing customers, this strategy is also very effective (Griffith, 2012).
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