Environmental Analysis Of NTUC FairPrice Co-operative In Singapore

Company overview

Question:

Case Study on PESTEL Analysis of NTUC FairPrice Co-operative?

Successful businesses owe their superior performance to their ability to control certain aspects of their internal environment factors. But apart from a company’s internal resources, there are certain macro-economic factors governing the external environment of the company that have profound impact on the company’s performance. The purpose of this report is to perform an environmental analysis on the company NTUC FairPrice Co-operative, the largest supermarket chain in Singapore.

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 “To be Singapore’s leading world-class retailer with a heart”

This is the vision of FairPrice. The NTUC FairPrice Co-Operative is a co-operative of the National Trades Union Congress (NTUC). The firm founded in 1973, has the most market share and has a strong presence across various grocery channels; FairPrice and FairPrice finest for supermarkets, FairPrice Xtra for hypermarkets and FairPrice Xpress and Cheers for convenient stores. The USP of the store is the offer of a fair price for all its products, the primary targets being the low and middle income consumers. As of now the company has around 270 outlets country wide of which Cheers has 123 outlets and FairPrice Xpress has 24 outlets and annual sales of around 2000 million U.S. Dollars. They deal with a wider range of products including bakery, alcoholic beverages, dairy, snacks, drinks, sea foods, deli, frozen foods, pharmacy, meat and poultry, general merchandise, grocery and so on. The company also has internet retailing facility for the convenience of their consumers.

Singapore was founded in 1819 as a British trading colony. In 1965 the country became independent after separating from the two years association with the Malaysian Federation. Singapore then went on to become one of the world’s leading countries with strong international ties and trades and per capita GDP on par with the western countries. Singapore’s economy is the second freest in the world according to the 2014 economy index. Minimum tolerance for corruption, strong judicial laws, and competitive financial sectors has ensured continual economic growth and development in the country.

Singapore’s food and retail industry is a significant component of the country’s growing economy. The country has several locally established industries while playing host to a number of international enterprises as well. The world-class infrastructure, strong governance, high quality standards, location, ease of business and skilled work force are all factors that could Singapore the next food hub of the world.

In the proper functioning of a company, and in situations like new product launch ideas and new ventures, apart from analysing the internal factors or the micro-economic factors such as resources, finance, and human capital, leadership, culture inside a company and the structure of a company, a company is required to analyse the macro-economic factors that will influence their strategic planning. The PESTEL analysis is the most common tool employed for assessing these factors (Yüksel, 2012). Through PESTEL analysis, this report attempts to identify the NTUC FairPrice’s business environment and help them in adapting to the actualities of their business environment. The advantage of this analysis is that it helps minimize the threats and maximize profit.

Economic and social factors

The six categorized factors according to PESTEL analysis are are described below. The first letter of each word is combined to form the word PESTEL.

Political factors concerns with the degree of government interference in a country’s economy. These specifically include tax policy, tariffs, trade restrictions, labour law, and political stability (Žvirblis & ZinkevičiÅ«te, 2008). Singapore is a country world renowned for its high-quality governance holding one of Asia’s most efficient governments. The political conditions in the country are favourable to NTUC FairPrice and in planning a new venture, the political risk on investments is very low.

Economic factors include economic growth of the country the business is based in, inflation rates, interest and exchange rates and have major impact in the operation of any business. Interest rates impact a firms capital cost and directly impacts the growth and expansion of the company. And exchange rates affect the export and import of a company. It is one of world’s leading economies and has a GDP per capita of around 45,000 USD (approximate value) and GNI per capita of around 40,000 USD (approx.). Thus, an average citizen in Singapore has higher average income and standard of living when compared to the rest of the world.

Singapore is a highly trade dependent economy. The country imports ninety percent of its food. And it was one of the economies in Asia to have strongest recovery from the global economic crisis of 2008 but it is not the case for rest of Asia and other countries the country deals with. This has an impact on the economy growth of the country, with the export rate coming down.

The labour market in Singapore rose to a new high in the recent years owing to its strong recovery from the crisis, with an unemployment rate of only two percent throughout 2014. Singapore is the seventh most motivated labour force in the world and has the fifth most skilled work force in Asia (Pagell & Krause, 2004).

Social factors affecting the external environment of a company are population growth, age distribution, career and income distribution, health and cultural aspects. Singapore is a country with a population of only about 5.47 million (as of June 2014). One of the growing concerns about the country is its declining population growth since the birth rate has declined drastically over the last decade. But these schemes still haven’t helped in increasing the population of the country.

The literacy rate in Singapore is very high around 92.5% which indicates that most Singapore residents have higher or secondary education. Singapore is the world’s largest social media market according to a recent market survey. With the advent of technology, evolution of smart phones and availability of twenty four hour internet services social media market is used by people for a variety of purposes. This opens an opportunity for business to create brand awareness and market their products via the social media for better reach to the people. Several companies in Singapore have taken to social media marketing through Facebook and Twitter.

Political factors

With regard to NTUC FairPrice, the social factors can have both positive and slightly negative impact. Also the shift towards healthier lifestyle may influence people to avoid frozen foods, and other unhealthy products. But overall the company’s prospects aren’t too affected by the social factors.

The technological factors include aspects such as automation, research and development, and rate of technological advancement of a country. The government of Singapore has invested heavily on the R&D activities in the country and there are lot of highly trained scientific personnel operating in the country (Koberg, Detienne & Heppard, 2003). The nation’s iN2015 plan was devised by the government to help the country realise the potential of information and communication technology.

Environmental factors include climatic changes, weather, natural disasters and epidemics. The country’s local climate has an influence on the type of food people prefer. In case of natural disasters, in the country or in any of the countries the company has trade relations, will affect the export and import. For example after the earthquake and Tsunami in Japan, the export of sea food and other produces from the country had stopped until the nation recovered from the damage. This may cause people to stay clear of Japanese food fearing risk to health affecting the Japanese food market (Yuksel and Dagdeviran, 2007). Similarly with the outbreak of a particular disease caused by food products, people tend to fear and stay away from those products. For example, during the bird flu outbreak, the chicken consumption in the world was affected since people steered away from buying chicken.

The Government of Singapore has strict rules for their local poultry producers and the importers of poultry. All food products are tested for their high quality and only then sold in the supermarkets since meat, poultry, sea food etc. are all vulnerable food prone to diseases. NTUC FairPrice’s reputation as one of the retail chains with the highest quality may be beneficial to them at these times because consumers would then look for safe choices. NTUC FairPrice’s highly reputed pharmacy services also remain unaffected by these factors.

Legal factors include law and order in the country. The taxes in a country, the consumer law, discrimination law, labour law and other laws in a country affect how a company operates. Singapore is a country with one of the lowest tax rates in Asia. Singapore is a part of ASEAN (Association of Southeast Asian Nations), a ten country association. Also, Singapore has been named as the best country to do business in by the World Bank. The easy process of setting up and closing a business, paying of taxes, investor’s security are the factors that led to the name.

Another tool used to analyse the macro-economic factors is the Porter’s five forces tool which identifies Supplier power, Potential entrants, Industry rivalry, Buyer power and threat of substitutes as the five forces affecting the environment of a business. It provides the company with a view on where the power is in the location the company is planning to move to and also the business potentials. This analysis gives a clear view on how a company can exploit its strengths and improve on weakness to experience continual growth (Daft, Sormunen & Parks, 1988).

Conclusion

As far as NTUC FairPrice is concerned, the main competitors include Sheng Shiong Supermarket which also targets low income consumers (their trade mostly done with China) and Dairy Farm International which caters to middle and upper income consumers. Both these companies trail behind NTUC FairPrice in market share. But in order to stay ahead of competition at all times, NTUC Fairprice must constantly improvise on their services and introduce new services.

Options for purchasing food are galore in Singapore. As previously mentioned, Singapore is country that imports ninety percent of its food requirements. Therefore the country has numerous supermarkets and convenience stores all over the country. NTUC needs to be careful about this in planning new ventures.

Considering the numerous number of suppliers ready to supply items in Singapore, the power of suppliers is significantly lower. And NTUC FairPrice is not dependent on a single supplier for their business. For any business it is necessary that the firm maintain good relationship with the suppliers but if necessary it is possible for NTUC to acquire products of equal quality from other suppliers.

Since Singapore is an easy country to start business in new companies come up every day. The highly pro-business environment makes potential entry of new businesses a valuable threat. But according to reports, the availability of high quality sales and marketing people is lower in the food and retail industry. And since the quality of products expected in this industry is very high, established businesses such as NTUC FairPrice hold a fair amount of competitive advantage over potential entrants.

Threat of substitutes is quite high in this industry as far as Singapore is concerned. Several stores in Singapore offer the same products offered in NTUC FairPrice. Competitors like Cold Storage, Dairy farm international are valuable substitutes. In order to keep ahead of these threats NTUS FairPrice must offer unique products with lesser substitutes to maintain the customer base.

Singapore has a mature food and retail industry and NTUS FairPrice must be vigilant when it comes to competition. In order to keep up with their success they need to constantly supply products that are highly on demand and also come up with unique and creative ideas to keep ahead of the competition. It is recommended that NTUC FairPrice keep in mind the health of their consumers and continuously provide with products of high nutritious value and also recommendations on everyday diets that is beneficial. Creating a Page in Facebook, twitter will help increase brand awareness. It is also recommended that the company improvise on their online buying facility and make buying simpler. One way to attract online customers is the fast delivery of fresh food. In rapidly growing online shopping age which saves time of working people this will prove to be very beneficial for NTUC FairPrice.

In planning new ventures, NTUC FairPrice can choose locations that are central to a large population. New outlets in shopping malls provides with new customer base. It is also important to ensure that the employees are well trained, have knowledge about the products that are being sold and are customer friendly. Applying these recommendations can help strengthen NTUC FairPrice’s business prospects.

Conclusion

Qualitative analysis conducted in analysing macro environmental factors shows that political, technological, legal and economic factors have the most favourable influence on the performance of NTUC FairPrice. And, the least favourable of factors being environmental factors. The companies that continually scan their business environment for strategic uncertainty by frequently conducting these analyses tend to be high-performing companies when compared to their counterparts (Mason, 2007).

References

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