Assessment Of Market Opportunities Of Zalando In The Middle Eastern Region

1. Identify and assess some of the current strengths and weaknesses of the international organisation(s) relative to its global environment

2. Recommend a logical outline strategy / plan to enhance its global competitiveness

Zalando Background

The global competitiveness are the products or services provided by the company to serve international customers. It enables companies to sell products and services internationally which increases profits and compresses the playing field in business. This report defines the market opportunity assessment of Zalando in the Middle Eastern Region. Zalando is the internet retailer of branded clothing and footwear for men, women and kids. It has largest collection of clothing, accessories and shoes. The values of the company relies in the latest technology with the exceptional customer service. The company is engaged in expanding exclusive brands offered by its internet shop. The company want to expand in the potential markets like Turkey, Egypt and UAE. The assessment is conducted to evaluate which of the 3 markets, the company should enter first.  In order to assess market opportunities, the investment environment, effects of the government interventionist policies, market potential, impact of regional integration initiatives. The report also comprises identified related issues of the markets along with the opportunities and threats.

Zalando is growing on the constant basis which is evidenced by its recent acquisition in 2010 of MyBrands, an online designer outlet. It helped company to broaden its target consumer group along with the premium products range. Zalando is determinedly established in the European market. The company has decided to compete in the global markets by expanding its products range to the Middle Eastern Region. Zalando has shortlisted potential markets as Turkey, Egypt and UAE for the expansion. Being a marketing consultant, the company has approached to assess market opportunities in the Middle Eastern Region. The strength of the Zalando lies in its structural advantage which is the company has lower operational costs than a brick and mortar store (Vandevelde, 2017). The offerings of the company in the wide options make it unique in the market. The company allows 24 hour access and 7 days a week for the customers. The company faces weaknesses in the form of shipping times. There is no immediate fulfilment with the ecommerce. It is considered that heavy, huge and unpreserved goods are costly to ship. The costs are always an annoyance. Due to the safety and the fraud concerns some people are hesitant to use credit cards for the online transactions. Permitting customers to pay using PayPal can dull this concern (Aitken and Harrison, 1999). The show rooming has dull the difficulty of shoppers incompetence of customer to trace merchandise and looking at merchandise in stores. The shoppers can look at the merchandises in stores and then uses mobile phones to place an order with the Zalando frequently while still in the store.  A plan is suggested to enhance global competitiveness of the Zalando.

Market Opportunity Assessment

Zalando is a medium sized firm and is interested in expanding cautiously and step by step. In order to operate in the Middle Eastern Region, most prospective market is identified out of the Turkey, Egypt and UAE. Zalando has identified Turkey to enter first and has undertook assessment of the market opportunities.

Turkey is a dynamic economy with the constant and fastest growth. The country supports international investors by offering accessibility to the domestic market. Turkey is the second largest beneficiary of FDI. The country has approved a series of legislative restructurings in order to simplify foreign investment (Wahba, 2015). The attempts of the company to join European Union has helped to establish European regulations and trade standards (Blechinger, et. al. 2016). The local government of the Turkey is working hard to attract FDI into textiles, technology, electronics, shipbuilding and services like health, public transport and education. Turkey has a developing young middle class population with the increased purchasing power and direction towards consumption. The market of the Turkey is having over 70 million consumers. The Turkish government has played huge role in creativities to make country a striking destination for the security and business operations. The new commercial code of the company has embraced significant reforms to form transparent, equal and modern environment for the business. There are twenty regions in the Turkey which converse numerous advantages like exemptions from custom duties, VAT and social charges (Farla, De Crombrugghe and Verspagen, 2016).

The policies in Turkey are quite legalist in nature. If it is talked about the regulatory efficiency, the government has reduced the time required to register a company. It is seen that the political uncertainty and security concerns cast a shadow over the business conduct in Turkey. The government has few price controls and sets prices for the products provided by the state-owned enterprises. Trade is important to the economy of Turkey. The shared value of imports and exports equals 47% of GDP.  The tariff rate is 3.2% whereas nontariff obstacles obstruct trade. In general, it can be said that the government policies do not considerably interfere with the foreign investment. In fact, the investors face bureaucracy and variation in the legal and regulatory environment. The financial reforms of the Turkey has enhanced transparency and competitiveness in the business environment (Ghaffour, Bundschuh, Mahmoudi and Goosen, 2015).

Turkey experienced a robust economic growth following the global crisis. It is a developing nation with strong economic potential offering numerous business opportunities for the companies. Turkey is also a gateway to the markets of the European Union. The country has over 75 million customers which makes it one of the most popular markets. Turkey has qualified, accessible and economical workforce. 60% of the population purchases foreign goods and has recently experienced a significant increase in the standards of living. The country has legal framework which is very close to the European standards. There is significant tax policies along with the incentives for the foreign companies. Turkey maintains a transparent and efficient public sector and the government takes several initiatives and administrative reforms. The government here seeks that the business thinking to develop business in Turkey should particularly deal in the activities like consumer goods, IT, infrastructure, energy, transportation and more (Braeman, 1983).

Market Opportunities in Turkey

The regional integration is a procedure through which adjacent states enter into an agreement to upgrade assistance through common institutes and rules. The purposes of the agreement range from economic ton political to environment. It is usually in the form of political economy where commercial interests are focused. The power of the Justice and development party has prompted the emergence of a new Turkish foreign policy doctrine in 2002. The principles focus the policy of zero problems with neighbors. It is more of autonomous foreign policy. Turkey as a regional leader has made efforts to improve bilateral relations with neighbors and conducted initiatives in the region. The country even implemented ‘zero problems with neighbors’ policy and tested capacity to deal with the regional instability (Caiazza and Volpe, 2015). It even redefined the Turkey’s foreign policy principles and rediscovered Western allies.

Turkey has conspicuous split between the east and the west of the country with the investment opportunities, economic development and infrastructure. There are no standardized financial reporting standards which highlights the varied nature of the corporate practice in the country. But there are sufficient opportunities in the Turkey market as the large and young population is urbanizing and has enhanced disposable income. The growth of the capital market will initiate challenges to the e-commerce industry. Zalando can have threat in the form of experimenting new markets (Joffe, 2014). Turkey has first generation shopping malls which encourages international and luxury brands.

UAE government emphases on variation and seeks to encourage development of the private sector as an economic governance of the state. There are various ingenuities, regulations and laws implemented in the country to develop an encouraging environment for the foreign investment. UAE upholds a position as the foremost trade and investment hub for the geographic region. There is ease of doing business in UAE (Sbia, Shahbaz and Hamdi, 2014). The multinational companies cite the UAE’s political and economic stability, growing capital markets, GDP growth, absence of the corporate and personal taxes are the positive factors which contribute to the investment atmosphere in the country. The country is continued to attract foreign investment mainly on the finance, wholesale and retail trade. The regulatory and legal framework of UAE errands local over foreign investors and the foreign investment continued to grow. The government in UAE maintains no barrier to the venture in the form of sponsorship and distribution. UAE is already home to the various multinational companies (Chaisse and Bellak, 2015).

Market Opportunities in UAE

The government interventionist policies governs the business in the country along with governing the consumer rights and free zone in which the business operates. The business in UAE is governed by the free zone authority. The government intervention policies affect to the company as it focuses on creating environment more conductive to the foreign investment. The intervention policies can affect Zalando as it provides strong and basis for corporate regulation in UAE. The government also upgrades its federal legislative framework to closely work with the international organizations. But there are foreign investment laws eliminates a great part of the supervisory and executive complications to entice foreign investment (Liu, Zhu and Zhang, 2018). The government intervention policies creates a unified regulatory framework like investment procedures, registration and licensing. It also treaties with the advantages, tax exceptions and assurances for the foreign investors as well as rights and duties (Sbia and Alrousan, 2016).

UAE has well established political system along with the liberal trade regime. The country continues to be relevant and attractive to the businesses around the globe to do business. UAE is the fastest growing e-commerce industry. There are significant opportunities in the UAE market due to the young adult population which are engaged in making purchases online due to the ease of convenience. On an average, 40% of the total population is made up of young adults. The 50% of the total population fall into this segment. This segment is influenced by the social media and anticipated to adopt modern shopping options (Coskun, 2001). This number is expected to grow as more and more are likely to go online.

The UAE has significant potential for the economic growth. The neighboring states enter into an agreement with the host country in the regional integration initiative. UAE is a member of the WTO since 1996. UAE shares appropriate economic relationship with the neighboring countries. It is also negotiating a trade agreement with China to develop the trade and service sector (Dumludag, 2009). It helps to develop the industrial and service sector of the UAE. The country is also negotiating agreements with some neighboring countries to lessen barriers and for the liberalization of the services, trade and agreement. All these agreements evidence to the internet penetration in the UAE as it stands at 99%. In UAE almost 85% search for the product online out of which 63% made a purchase on-line (Yeung and Coe,  2015).

Effects of Government Interventionist Policies

The foreign investors felt concern over weak dispute resolution, mechanism, the laws and the lack of regulatory in the UAE. Add on, the foreign companies are essential to have a national mediator with 100% UAE national ownership. The law in the UAE also requires foreign principals to sell their products in the UAE only with the help of exclusive commercial agents (Crescenzi, Datu and Iammarino, 2017). The business friendly policies in the UAE create opportunities for the Zalando as it encourages entrepreneurship and startups in the country. UAE offers an encouraging environment for the fresh and young e-commerce businesses to flourish and grow. It is also successful in attracting capable talent from around the globe (Maghyereh, Awartani and Al Hilu, 2015).

The investment climate in Egypt has improved remarkably in 2017. The country has promoted foreign direct investment has witnessed significant structural reform. The investment law in the country offers a new framework to offer investors more investment related rules and streamlines procedures. The country has witnessed many ups and downs in the recent years. There was never a better time for investing in Egypt. It is because of the vast amount of potential specifically due to the largest consumer market the country has. The Egyptian economy can be appealing to the foreign investors by building successful partnership with them (Ozturk, Joiner and Cavusgil, 2015). It has emerged as a favored location for investment. The country has trade opportunities due to the close ties with the Europe. It is a best place to invest in both downstream and upstream sectors. The network in the Egypt is a great online resource for the small and medium businesses looking for investors. The opportunities can be Egypt can be made by simply registering on the network. It is not necessary to uproot and relocate to a city in order to conduct a successful business. The business can be setup easily with the help of the on-line platforms. There is no need of the physical stores. The goods can be easily delivered to the customers by making purchases online.

The government intervention policies enhances investor’s confidence and do not distort the market. There is emerging trend in the Europe for the governments to intrude in the foreign takeovers in order to defense the national interests. The country averts loss of key strategic industries which causes underlying tension. The government in Europe intervenes to prevent takeovers in the key industries. Europe relies heavily on the foreign investment and favors pro-trade approach. The government can prohibit Chinese and foreign investments to direct link between the foreign investor and the target. The government can raise concerns about foreign investments. The government has power to give a non-binding opinion on such investments. The European government can even carry out review of foreign investment affecting the interest of the country (El-Diftar, Jones, Ragheb and Soliman, 2017).

Conclusion

The government in Egypt is implementing various transformational reforms and gradual renovation of confidence and constancy. It has even started to produce positive results. The efforts of the government remains difficult due to high inflation and attrition of the real incomes. The market in Egypt is growing at the rate of 15% which makes one of the fastest growing developing country in the globe (Uchihira, Ishimatsu and Inoue, 2016). The private sector in the Egypt is dominated by the excess of small and medium businesses which represents good marketing opportunity for the Zalando. The country even provides credit developments and enhancements to access credit for the foreign companies. Egypt has even launched appropriate improvements to revive its economy and attract foreign investors from various industries (Rickne, 2003).

The regional integration initiatives has moved Egyptian economy more towards a more liberal trade regime. Egypt has come in agreement with the Europe in 2004. Europe elevated all the trade barriers to Egyptian industry. Whereas Egypt has committed to remove trade barriers in the 12-15 years transitional period. Egypt has even signed various free trade agreements in order to help its exports. The country has also signed bilateral trade agreements to offer improved market access. It also participates on the trade preferences system of the Islamic corporation. The country is even continued to reform process with a view to make its customer’s esteem more efficient and transparent. It has already facilitated some changes to activate the authorized economic operator system. Egypt has even accepted WTO code of good practices for the adoption and the application of standards. The technical regulations are also issued by the country (Salacuse, 2017).

Egypt is capable as an emerging market and dignified to offer good returns for the foreign investment. However there are some risks causes to the businesses making expansion in the country. A number of regulations, subjective decision-making, high market transaction costs and unresponsive commercial court system can cause problem to the company (Sayar and Wolfe, 2007). The corruption and fraud are also some serious concerns in the country. It adds significant inefficiencies to the commerce. Islam is practiced in the majority of the population of the Europe and plays significant role in the culture and society. Zalando has to manufacture products as per the requirements of the society otherwise it can fail to capture the target segment in the country (Sherwood, 2016).

From the above analysis it can be concluded that Turkey is the most prospective market where Zalando should take decision to enter first. As e-commerce in Turkey is growing fast. It is expected to reach 50 billion Turkish Liras in the online retail industry by 2018. It represents that e-commerce is expected to grow 18.5% by the end of 2018. The country has conscious consumer profile that adapts to the digital environment rapidly. It has been confirmed by the global retail and e-commerce companies entering in Turkey with the awareness of the potential. The foreign players in the Turkey indicates that ecommerce sector have huge growth potential (Deichmann, Karidis and Sayek, 2003). The internet retailing in Turkey is unremitting to register stronger current value growth than the store based retailing. It is due to the increasing corporate investment in the online operations and growing consumer preferences for the online shopping. Some factors like increasing internet penetration, consumer awareness and consumer trust are contributing to the stronger performance of the ecommerce companies. The non-store retailing and the internet retailing due to the corporate investment in the online operations has capitalize increasing consumer preferences for the online shopping. The market entry strategy appropriate for the Zalando to enter in the market of Turkey is explained below.

References

There are significant opportunities for the companies to enter in the Turkish market. Zalando can make use of joint ventures or exporting to enter in the market of Turkey.

Joint ventures: The joint ventures are the method of partnership which results in the formation of a 3^rd independent managed company. In this process, two companies agree to work together in the particular market. So Zalando can enter in the joint ventures with the local company of the Turkey in the particular markets of the Turkey (Tatoglu and Glaister, 1998). The risks and profits are shared equally between both the companies. This market entry strategy is suitable for the Zalando as the local company of the Turkey will be already known to the environment of the country and the preferences of the consumers. It can help to attain basic information of the market in Turkey.

 Direct Exporting: The direct exporting is the process of marketing directly into the market of Turkey. Zalando can establish a sales program turn to agents to signify them in the market. The agents and distributors work closely with the interest of the company. They can become the face of the company. So it is important for the company to choose agents and distributors in a wise manner. They should be handled the way same as the key staff person (Tate, Ellram, Schoenherr and Petersen, 2014). It represents a greater degree of control over the aspects of the transaction and helps in knowing customers.

Conclusion 

Zalando is growing on the persistent basis which is evidenced by its growth over the years. Turkey is most suitable for the Zalando to make expansion out of the Middle East companies. There is more trend of the non-store retailing and the internet retailing due to the corporate investment in the online operations. It has even attracted the interest of the consumers in the Turkey. The methods chosen to enter in the market of Turkey are direct exporting and joint ventures. Both of these marketing strategies are risk free for the company. After Turkey, Zalando can enter in UAE and then Egypt. The foreign investors felt concern over weak dispute resolution, mechanism, the laws and the lack of regulatory in the UAE. Egypt is also a developing country and cause some risk to the company in order to conduct business operations in the country.

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