Identify and assess some of the current strengths and weaknesses of the international organisation(s) relative to its global environment
Considering Zalando being a medium sized firm we want to expand cautiously and step by step.
While operating in the whole Middle Eastern Region is a long term objective at first we want to identify the most prospective market to enter. As we want to know which of the three markets the firm should enter first, we want you to undertake a market opportunity assessment.
In your analysis, examine the investment environment, effects of government interventionist policies, the market potential, the impact of regional integration initiatives, if any, and related issues with a clear identification of opportunities and threats in each of these markets.
Recommend which country the firm should enter first, explaining why. Also suggest which market entry strategy is more appropriate, with justification. Resource wise, we are confident that we will have no problem to undertake the opportunities identified and recommendations proposed in your report.
Addressing the question / topic: The main body of the report where the question is addressed. (This part may have a few sections / sub-sections). The key criteria here include:
- Research – evidence of systematic research approach, depth and breadth of research undertaken; application of appropriate conceptual (theoretical / empirical) framework(s), etc.
- Analysis – well focussed on answering the question, depth and clarity of argument, evidence of critical engagement, organising / summarising collected information (e.g. in Tables, Graphs, trends, etc.); answering the questions/tasks fully.
Global Market Opportunities Analysis (GMOA)
Business expansion is a phase where a business approaches the point for development and looks for the extra alternatives to produce more profits and revenues. After making successful establishment in domestic market, every company plans to expand its business in international market. Business expansion is one of the most significant strategies which help the companies to enhance its brand presence among targeted population in other countries (Czinkota, Ronkainen and Moffett, 201). The major purpose of this report is to analyze market opportunities for Zalando Organization in three potential markets i.e. Turkey, Egypt and UAE. Zalando is an electronic retailer that is based in Berlin, Germany. The company is engaged in offering branded beauty items, footwear and cloths for women, men and children. It was established in the year 2008 and it has its operations in 15 nations all over Europe (Zolando, 2015). It runs in premium and standard segments and selling a variety of products. This report includes the analysis of market opportunities and attractiveness of three chosen markets Turkey, Egypt and UAE by using GMOA 6 tasks. Moreover, the best market is identified by conducting this analysis where Zalandocan enter. At the end, market entry strategy is suggested that Zalando can use while entering into new market.
Global market opportunities include a positive combination of locations and conditions which offer prospect for expanding business in foreign markets by using different entry modes like exporting, investment, partnership, sourcing etc. (Knight and Riesenberger, 2017). It includes 6 tasks which can be practiced to evaluate the market opportunities in chosen foreign countries i.e. Turkey, Egypt and UAE (United Arab Emirates). This assessment is discussed below:
Under GMOA framework, this is the first task that assesses the preparedness of a company to engage in international business. The readiness of Zalando can be analyzed by evaluating its strengths, weaknesses, resources, skills and competencies. Organizational readiness of this organization is analyzed below:
- Image of market leader in European market: One of the biggest strengths of this company is that ithas established abrand reputation of market leader among European internet retailers. It can assist the company to spread its business in international markets (Marraud, 2016).
- Strong Management Team: The Company has a robust management team that has capability to handle and manage the international business operations in potential markets.
- Financial resources: Since its establishment in the year 2008, the Zalando’s business has experienced a significant growth. In the year 2017, the total revenues of this company were€ 4.49 billion (Zolando, 2015). This growth can lead this e-retailer towards business expansion in foreign markets.
- A wide range of Products and resources: Zalandosells approximately 150,000 styles from more than 1500 brands. It has products for a complete family like men’s and women’s outerwear, underwear and clothing accessories and bags as well. In the year 2010, it has added children’s wear in its product range (Tulung, 2012).
- One of the biggest weaknesses of Zalando is that it has online presence only as it has not established its physical stores yet. It is totally dependent on the technology so the company may face the issues in international market in the case of technology failure.
- Future Competition can work as one of the major weaknesses for Zalando Company. In UAE, Al Shamshi Holdings is one of the biggest competitors that can pose immense competition on Zalando. In Turkey market, there are various online retailers like morhipo.com, com which can affect the business potential of this European retailer.
Thus, it can be stated that Zolandahas enough strengths, resources and competencies which indicate that company is ready to expand its business in international market whether it is Turkey, UAE or Egypt. The growth of company depends on the opportunities and readiness of the potential market. Weaknesses can hinder this growth so company needs to enter by using effective strategies (Ramamurti, 2012).
This task of the GMOA assesses the suitability of products and services for the international markets by conducting a systematic evaluation of company’s offerings for foreign customers.
Organizational Readiness of Zalando
Demographic analysis of online sales in Turkish market indicates that there is a notable hike in the young female users. In this international market, the number of online shoppers is constantly increasing that will be the most suitable point for Zalando’s business. The data shows that 33.1% of internet users in the country purchase products and services on internet for individual purposes (Oxford Business Group, 2018). It shows that in this country, people prefer to order their clothing and other products online that may support the product offering of Zalando. Moreover, Turkish customers are very much aware about the hygiene and quality and they are very much stick to traditional shopping habits. Generally, they prefer to visit lower priced markets to shop consumer and clothing products (Oxford Business Group, 2018).
The reports of UAE indicate that there are various changes in the shopping habits and buying behavior of UAE customers.2017 was the major year for internet retailing platform of this nation thus making an entry in this fast changing internet landscape will be good for Zalando. Now, 80% of the buyers are doing their shopping both online and offline.In this international market, decrease in oil prices and global macroeconomic factors have positive impact on the spending patterns and confidence of customers (Sadaqat, 2018). They are very much concerned towards wellness trends and good clothing that may have positive impact on itsZalando’s product offerings.
Egypt is the country where 27.8% of the population is earning less than the minimum income needed to meet basic daily requirements (Euromonitor International, 2018). Still, there are changes in consumption patterns of Egyptian customers. Increasing inflation has made the customers more careful and they are favor in buying locally produced products. In this market, e-retailing can be considered an option for the future but it has yet to claim a considerable market share. The customers are not that much aware about online shopping for their clothing products (The European Business Review, 2018).
It is an important task that helps the organization to screen the nations to identify the target markets. For Zalando, the screening of all three markets is done below:
In Turkish market, retail market is set to record a stronger sales performance over the estimated product as an outcome of better economic performance and large young population of the country (Euromonitor International, 2018). In this country, there is a significant increase in the number of online users and interest in e-shopping in continuously increasing. Recently, the volume of e-commerce emerged by 35% and it has approached TRY 200 billion. With the market size of 7.3 billion in previous year, e-retailing saw 37% enhancement in volume.In retailing industry, clothing, textile and footwear are on second rank that is rising from 100 to 155.7 (Federation of Shopping Centres and Retailers, 2018). In this market, e-commerce is a marginal activity that shows the changing purchasing patterns of customers as they are becoming richer and more connected to technology. Increasing inflation in the country has a negative impact on growth of retailers (Chetty, Ojala and Leppäaho, 2015).
Product and Service Assessment
According to report of Dubai Chamber of Commerce and Industry, the retail industryin this country is estimated to rise at anannual growth rate of 4.9%.Mobile penetration and robust internet has played a vital role in enabling the development of e-retailing in this country. It may have a great positive impact on the business operations of Zolanda. VAT (value added tax) introduction has led the retail players across UAE to emphasize on the ways in which they can offer great value to its customers. In this country, people are very conscious towards prices and they demand value for their money. They want clothing and other retail products with excellent quality that is the major driver of changing pattern of consumption in this foreign market.
However, penetration of internet in this market was weak in last year, but now e-retailing is booming in the country. The number of e-shoppers doublesper year. Furthermore, constant deficiency of hard currency is putting pressure on the Egyptian pound. So, Egyptian government had to board on austerity measures to handle the weakness in domestic currency (Oxford Business Group, 2018). Retail sector is highly fragmented and competitive that can pose competitive pressure on Zolanda.
Under this task, an entering company forecasts the most likely share which can be attained in every target market. It also includes the market entry barriers in the country’s industry.
In this market, e-retailing is continued to record a strong value growth than physical store based retailing in the year 2017 because of enhancing investment in internet operations and increasing preferences of customers towards online shopping. The major industry trends like internet penetration and awareness among customers have contributed to the stronger performance of the industry. In this industry, barriers of entry are moderate as Zolandadoes not need to make capital investment as it is offering its products through online website. Traditional players and competitors may act like market barriers for Zolanda. Government policies may affect the production system and regulation of business activities in Turkey (Oxford Business Group, 2018).
The retail industry in UAE is stood at $56.6 billion in the end of year 2016 and its sales turnover is estimated to exceed $71 billion by the year 2021. The size of Dubai retail market increased to 128.45 billion that covers 67% of total retail market size of UAE (Euromonitor International. 2018). In UAE, implementation of VAT is purposed at enhancing the state revenues to fuel the diversification strategies. With the passage of time, there are changes in the preferences of customers as they are going towards organic clothing brands. Regulations and standards can offer various profitable opportunities to the business of Zolanda (Nielsen and Nielsen, 2011).
In this country, political tensions and conflicts may affect the investment and business expansion adversely. Since the year 2011, the country has political instability that results in the restriction of many opposing parties. In Egyptian market, hypermarkets and supermarkets are the major market barriers as people prefer to buy their products from these stores. The country is facing hardship in its economic and financial environment that will have negative impact on Zolanda’s business (Zolando, 2015).
Under this task, a company makes the decision on type of business partner in foreign market. It makes the partner qualifications clear and develops the most suitable market entry mode. In the beginning, the company determines what value adding actions should be executed by foreign partners. In selection of partners, it will consider different characteristics like staff quality, financial strength, sector expertise, distribution channels etc.
In this foreign market, primarily Zolanda will partner with the suppliers as there is a large availability of suppliers who can work as distributors of its online website. Due to large availability, they have weak bargaining power in this market. Moreover, they will have lower switching costs. It will lead great opportunities for Zolanda to scrutinize the suppliers for best prices and terms. Under this, the company will seek for the qualified and loyal suppliers (Euromonitor International, 2018).
UAE is the country that can provide various business opportunities to this internet retailer i.e. Zolanda. In this international market, the company will enter by using international collaborative venture. In this country, there are various existing offline and online retailers which are offering men’s and women wears to their targeted population. Al Shamshi Holdings is one of them with which company can enter into joint venture or strategic alliance that will sell the products of Zolanda. Moreover, it can create joint venture with other e-retailers which are financially sound and have a great management team.
If the company plans to enter into Egyptian market, it can partner with a logistics and transportation company that can assist it in establishing distribution channels in new and international market. In this country, Marine Logistics Co. is the major player with which Zolanda can partner and establish its business in Egyptian market. It needs to find the logistics partner that is financially sound and have plenty of resources (Cain, Moore and Haran, 2015).
Under this task, the company estimates the share of sector sales which it can attain over a particular time period. For every target market, this task determines the components which will affect the sales potential of company.
Market Attractiveness and Market Potential Analysis
In this market, the intensity of competition is moderate as there are not very strong retailers which can create barrier against the entrance of Zolanda Company. It will not have major impact on the sales of company. However, the company has enough financial resources but still it needs to focus on generating significant sales in this market. In this country, young female generation is very much interested in shopping their fashion retail products from online stores. Considering them, the company needs to keep its prices lower in the beginning stage of business expansion. The company will ensure that its foreign partners are enough capable to support its entry into Turkish market (Fabling and Sanderson, 2013).
The market of UAE is very strong for retailers as it offers various opportunities to generate significant sales due to different components. This industry has estimated to grow on the 4.9% growth rate that will be profitable for new entrants in the country. As mentioned above, Zolanda has enough potential, resources and capabilities to expand business and generate sales in this country’s market. Moreover, intensity of competition is very high in this country as there are so many well-established e-retailers which can pose competitive threat on this company. To overcome this, the company needs to enter with effective and innovative business strategies (Naranjo-Valencia, Jiménez-Jiménez and Sanz-Valle, 2011). When choosing foreign partner, it will ensure that partner has an extensive network and access to distribution channels so it products can be delivered to the customers on time.Egypt
Egypt is the market where people are not very much aware about the internet shopping and there is a small population that can afford buying the products on premium prices. Zolanda is offering its cloths, footwear and perfumes on premium prices which can have adverse impact on company’s sales potential in Egyptian market. The company needs to make sure that it partners with the firms which have special contacts and links in this market (Hultman, Katsikeas, and Robson, 2011).
Thus, the above Global Market Opportunity Assessment indicates that firstly, Zolanda should enter into UAE market as this market will be more profitable than other international markets like Turkey and Egypt. This market offers various favorable conditions for e-retailing business and UAE customers prefer to shop their fashion products online. It can assist the organization in increasing its overall customer base. However, the competitive is intense in this market but it will lead Zolanda to formulate effective marketing and innovative business strategies so that they can establish their business operations in this market. It can be stated that UAE is the most attractive retail sector in the Middle East. In this region, it is the most enticing market with robust growth opportunities beyond Dubai. It provides an enticing retail proposition and innovation is the major theme in this market. Zolanda can use innovative themes and practices to establish its business in this market. In this way, it will be right to state that Zolanda first should enter into UAE then it should plan to enter into other foreign markets.
Recommended Market to Enter and Market Entry Strategy
According to Raff, Ryan and Stähler, (2012), modern organizations enter international competitions due to different objectives like increase in the profitability, international brand image, long term growth etc. Among international competitors, a creative and proper market entry strategy ensures a long term presence in market and it may lead the organization towards success on foreign markets. When any company plans to explore an international market, then the choice of most suitable entry mode is determined by its expansion strategy (Raff, Ryan and Stähler, 2012). Omar and Porter (2011) stated that market entry strategy is an important part of entering into new international markets. It is a planned process of delivering products and services to a targeted markets and supplying them in foreign market. When it is about exporting or importing services, it refers to developing and maintaining contracts in foreign market (Omar and Porter, 2011). In this context, Tuschke, Sanders and Hernandez (2014) stated that market entry strategies can be categorized on the basis of resource commitment, risk involvement and level of control. There are different types of market entry strategies which firms use while entering into foreign markets (Tuschke, Sanders and Hernandez, 2014). These strategies may be such as exporting, importing, foreign direct investment, joint venture, strategic alliance, international collaborative venture, franchising, green field investment etc. The choice of entry mode depends on the types of business operations and potential of company to handle the future risks associated with this business expansion.
As mentioned above, Zolanda Organization should enter in the most profitable market among three markets i.e. UAE market. Under this business expansion, the company should use international collaborative venture to make its entrance in UAE market. International venturing happens when two businesses which are based in two or more nations create a partnership (Ulhøi, 2012). An organization which wishes to explore international business without having the full responsibilities of international business transactions has the alternative of creating joint venture with the foreign firm. Zolanda may enter into UAE market by using international venture because it will help the company to establish its operations in this market successfully. This will be most appropriate strategy as it will cause less and minimized risks to the business of Zolanda. In this process, the company will find the foreign partner that is most capable and able to limit the risks involved in this business expansion (Chen and Chang, 2011).
Under this, company will partner with the retailer that already has its operations in UAE and distribute its products through this partner. In UAE, Al Shamshi Holdings is a retailer with whom the company should plan to form this joint venture so that it can establish its brand presence in UAE market. The joint venture with this firm can provide Zolanda the economics of scale which is required to compete internationally (Lee and Griffith, 2012). It will be very effective way by which both of the partners will be able to pool the resources and attain a larger customer base. As mentioned above, UAE market offers attractive business opportunities to Zolanda, so partnering with this domestic firm will be profitable for this company. Zolanda has less experience in operating business in foreign market so this market entry strategy will help to overcome the local barriers in the market. When an organization wishes to purchase another venture but it cannot die because of size, cost and geographical constraints, so it will be the best option for Zolanda for entering into UAE market. Thus, it can be stated that international venture will assist Zolanda Company to establish its business in UAE market (De Beule, Elia and Piscitello, 2014). The company will partner with the well-established local partner that is already engaged in selling men’s and women’s cloths and footwear. Using its website, the company will connect with this store and distribute its products among UAE’s customers. It will be beneficial for the company in order to gain competitive advantage in this new international market (Deutschmann, 2014).
From the above analysis, it can be concluded that UAE is the market that offers most profitable opportunities to the business of Zolanda. As per the given case study, Zolanda has limited presence and it only has its operations in European market. Now, it is planning to expand its business in Middle East market and assess three potential markets i.e. Turkey, UAE and Egypt. The above GMOA analysis indicates that however all the markets have opportunities for this company and company is enough capable to enter into international market. Among all the markets, UAE is the most significant market that can offer most profitable opportunities in this market. By conducting this analysis, it is identified that this company should make expansion in the UAE market first so that it can generate significant revenues and sales. The literature reviews that choice of market entry strategy is the most important decision while any company plans to spread its operations in other countries. The above paper suggests that the company should use international venture in order to expand its business operations in UAE.
It is hereby recommended that Zolanda should expand its business in UAE market by using effective market and business strategies. The company should diversify its product range in other segments like consumer electronics and food retail products. It will assist the organization to create a new customer base in this international market. The company should choose most capable partner in foreign nation so that it can make a successful establishment in this country. It is very important for the company to understand that forming a joint venture with local retailer will assist the organization to approach a larger population in United Arab Emirates.
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