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Overview of XXXX Industry

The case is “Marks & Spencer: A Global Expansion to Acquire Lost Momentum?” by Ahmed (2017).

You are required to know the competitive situation and the internal functioning of Marks & Spencer  (M&S).

1. Would Carrefour find the retail grocery industry in Australia attractive (18 marks)? Substantiate your answer by applying the relevant strategic tool to evaluate the industry in Australia.

The industry under examination is the XXXX This definition includes X, Y and Z, but excludes A, B and C. A determination of whether nor not this industry is attractive will stem from an analysis of the PEST environment and an analysis using Porter’s industry 5 forces framework.

The XXXX industry is currently worth $YYY and year on year growth has exceeded W%. The industry is the most concentrated XXX industry in the world, with over 60% of the sector held by 2 key players, Woolworths and Coles. In most other countries, the concentration held by the top 2 players does not exceed 40%. 

An evaluation of the external environment is undertaken in order to identify opportunities and threats that the industry faces. This evaluation will commence with the PEST analysis. ……, in particular focussing on trends that present greatest opportunity and threat for the industry.

The analysis of the general environment commences with identifying key trends in the political environment. One trend that is likely to persist into the future is the influence of minor political parties with regard to the balance of power. This may result in the passage of legislation that may complicate business’ operating environment such as the Carbon Tax …. A key aspect of the economic environment is the __________________________. This will __________________________. Sociocultural trends to take note of are _______________________________. These lead to _____________________________________. Technological trends to monitor are _______________ and _________________________. The former ___________________________ and the latter ___________________.

Porter’s 5 forces is used to firstly determine the attractiveness of the industry. This analysis will examine the threat of entrants and substitutes, power of suppliers and buyers and degree of industry rivalry. The threat of entrants, referring to the possibility of new players entering the industry, is deemed _____. This is due to ________ and ________. A key factor affecting the degree of rivalry is the industry growth rate. Currently it is B%. This could be due to trends in the wider environment such as _______. Supplier power is ____ due to the high concentration in 2 players. Threat of substitutes is ___ as _____________ from another industry. Buyer power is _____ as they are _____. Overall the industry is deemed ________. This analysis identifies key threats/opportunities for the industry as a whole. The key opportunities and threats are summarised in Table 1.A key consideration is that these opportunities/threats will persist over the __________. This level of attractiveness needs to be viewed in context as Carrefour is a global company. As such, defining attractiveness from its point of view would be contingent upon Carrefour’s capabilities, resources and strategy.

PEST Analysis

Carrefour has annual sales of _____ with net income of _______. It has ________ resources. It currently is a ____ leveraged firm and as such it is _____ to incur additional debt. Carrefour’s value chain is structured to deliver____. As such its competencies lie in ______ and ________. In these activities of the value chain, Carrefour has significant advantage over key competitors like____. In addition, this advantage is sustainable as _______. This is evident from ___________. Putting aside Carrefour’s preferred strategy of preferring to enter emerging markets as opposed to developed markets, given this analysis of its resources and capabilities, Carrefour _______  find Australia’s grocery retail industry an attractive industry.

Table 1: Table outlining the key opportunities and threats in the general and industry environments.

Opportunities

Threats

General environment

Industry environment

2. In the course 6 major modes for international entry were described: Exporting, Licensing, Franchising, Joint venture, Acquisition, Wholly-owned subsidiary.  Carrefour has used organic growth, partnerships, joint ventures, franchises and acquisitions to grow in international markets. It has also experienced set backs in Japan and Korea, having liquidated its holdings in both countries in 2005 and 2006 respectively.  If Carrefour chose to enter the retail grocery industry in Australia, which two entry modes would you recommend to Carrefour? Outline the reasoning behind your selection.

Prior to recommending an entry mode for Carrefour to enter the Australian grocery market an analysis of the environment and its competitors is critical.

As can be seen from the answer to Q1(a), the Australian grocery industry is deemed to be __________. That the industry can be penetrated is evident from Aldi’s successful entry, and more recently Costco.

Reasons why the Australian grocery industry can be entered, despite entry barriers being high, is the company’s resources at its disposal. Given that Carrefour is a Billion dollar company with world-wide sales exceeding $____, Carrefour may be able to overcome these barriers. However Carrefour would still want to overcome these barriers in the most cost-effective manner possible in the pursuit of profit. Determining an appropriate entry strategy requires an analysis of the risk exposure and the degree of control that Carrefour would find acceptable in the pursuit of that profit. Fig 1 depicts the various entry tactics and the associated level of risk and control.

 

Figure 1: Entry strategies and their associated risk and control

Risk concerns ______________________________. Control is about ___________________________________________. As can be seen from Figure 1, the lowest level of risk and control is with exporting and the highest level is with the wholly owned subsidiary. In the Australian context the level of risk is dependent upon a new entrant’s ability to gain scale economies, access to channels and the ability to overcome competitive tactics. Given that the level of competition between the owners of Coles and Woolworths is escalating into a multi-front war, this requires gaining quick access to local knowledge and expertise in order to reduce levels of risk, while retaining sufficient control to develop the competencies required to deliver Carrefour’s key value of __________. As such,  it is recommended that Carrefour use either the franchise or Joint Venture entry modes. The option to enter into a strategic alliance is not considered as there are few local non-aligned supermarkets of sufficient scale to develop such an alliance. The wholly owned option is also discounted as it is deemed to be associated with excessive risk given the intensity of competition in the Australian context. With the relatively low industry growth rate of X% annually, this level of rivalry is also likely to impact upon profitability

The choice of a franchise has the advantages of  _______________________________________ and the disadvantage of ____________.

The joint venture has the advantage of _____________________. The disadvantages of ____________ can be over come by __________________.  Both of these entry modes share the common element of gaining access to crucial local knowledge and skills that will allow_____ while sharing different levels of risk.

Overview of XXXX Industry

Strategic management refers to the consistent planning, supervision and evaluation of all the required things of the organisation to fulfil the objectives. It is the changing fast-growing innovation of the organisation and expectation of the clients that force the companies to take decisions for making strategic improvements. In this context, it is important for the company to apply the essentials of strategic management as it helps the leaders of the company to evaluate the existing situation of the workplace the potential risk present within the company and thereby sort out strategies to solve the issues. Therefore, the study deals with the strategic management process of Marks and Spencer that involves the evaluation of cross operations decisions of business before applying them. In this context, the study highlights the competitive edge of the company thereby portraying the companies' existing internal and external situation in the market. Based on this factors the study discusses on the existing business model of M&S through porter’s analysis followed by environmental evaluation through PESTLE.

Porter’s model of five forces will help in analysing the growing competition within a specific industry. It is equipment that helps to demonstrate the position of the existing organisation in accordance with the rival enterprises (Lasserre 2017). Therefore, the model of five forces in this study will offer the information about the organisation's present condition and the ways that are necessary for the future success within the organisation. Apart from these, the model will help in recognising the attractiveness of the sectors thereby implying the progressive profitability of the industry. Generally, it provides the idea of the average prediction earned by the company.

The retail market has a high barrier of entry due to the presence of high capital investment within the market to accomplish cost-effectiveness and scaled economic retailer of M&S are very poor for which it is difficult to obtain a new player. Apart from this, it is evident the market on which Marks and Spencer is investing is an growing market that would attract the new entrant to offer customers with new business strategy that may become hard to conduct dress retailing (Secundo et al. 2015) All the major potential industries have string development names of trade that becomes relatively important for the import within the homogenous market. Their attempt accumulates within the local market may pose the problem for the company due to the growth of new entrants in the market (Karadag 2015). More specifically, the lack of experience and recognition for operating in this market there would be problems for any new entrants within the location.

PEST Analysis

Looking at the international and overall condition of the market, there are no major replacements that can overgrow the company. However, there is a marked possibility that M&S nutrient products and clothing can be easily replaced by the other merchandise retailers. Seemingly, most of the direct challenges in case nutrient products are probably, Waitrose, John Lewis and Peter Jones that delivers standards quality clothing’s within the international market as well as other markets in different currencies (Bolden 2016). In China the company considerably failed due to the presence of merchandise that offers chides touch in their products.

In China, with such a demographic profile Mark and Spencer cannot sustain their business amongst the customers for a long period of time. Therefore, it is evident, that in China the power of the buyers are stronger since the customers present there have many retailers to select from ranging from a variety of markets such as Tesco, Carrefour and other merchandise such as Zara for clothing (Christopher 2016). Buyers in this context can make a demand to get products on a cheaper process that may reduce down the profitability of the company.

Figure 1: Porters Five forces

(Source: Christopher, 2016, p.144)

On the other hand, the power of the suppliers of the company is low in China and India, since customers have various choices including the local brands. Suppliers have lowered the power from the quality, cost and system of delivery (Nolan, Ciara and Thomas 2016).  It is through the use of internet customers can easily; compare the cost of the items from various suppliers that may easily limit the power of the suppliers.

External competition for the company is high on all the aspects of business coming from the high process, high activities of promotion in the different market and falling down as well as growing of sales (Fernie, John and Leigh 2014). There is a stiff competition for the company that is coming from international brands such as Zara that has almost operations processed in their in-house location. The uncompetitive pricing strategy of the M&S in the market of China and India declined the sales of the company while increasing competition.

Strength

  • Superior and trusted retail brand with a long-term performance reputation with a delivery of high-quality products.
  • M&S has huge store channels with successful international penetration of the market with almost 1253 stores in 55 different territories.
  • Growing online and e-commerce store with several trained employee.

Weakness

  • Uncompetitive price of products and improper merchandise specifically when the company started in China.
  • The poor style of the clothes on the Indian boundary where the shirts did not have pockets to keep their pens.
  • It was comparatively slow to adjust in the highly competitive and dynamic market.

Opportunities

  • Increasing demand of the customers for fashion apparel amongst the different countries with almost more than 30million customers.
  • The overseas market of the company in China and India is expanding intensively with healthy clothing and healthy food habits.

Threats

  • The company has faced high competitions from low cost reputed companies.
  • There is a huge threat that may occur from the sale of substituted products due to the increase (Fernie, John and Leigh 2015).
  • Increase in the use of the internet that can provide the customer with better information.

Aspects

Opportunities / challenges

Political

  • The European Union and free trade agreements will help the company to provide suitable sources of goods from different international boundaries at a lower rate for the products (Hingley et al. 2015).
  • These policies can even challenge M&S since it places the competitors in appropriate position compete with the other companies on the process since they are able to obtain better products at better rates of the price.

Economic

  • The economy of the UK is slowly overcoming from the period of recession. As a result of which there are emerging markets in boundaries of Russia, India, and China and Middle East economies.
  • Competitive pricing in the emerging market can provide them with the opportunity of being creative with increased promotions of sales (Chimhundu 2015).
  • Expanded opportunities for the global market and trade for outsourcing the products.

Social

  • The price of nutrients and funds are falling down in the market. as a result of which there is an increasing demand for fashion retail clothing within the market (Karadag 2015).
  • Diversification into a broader selection of market such as delivery of quality food service, online home delivery.
  • They have the opportunities to grow innovative styles and designs for responding to the enhanced segments.

Technological

  • Growing number of consumers in the online e-commerce market.
  • Customers in the market are increasingly changing in to more technologically friendly.
  • They have the opportunities to minimise the cost of capital investment for the building of physical stores and expand the areas of geographic accessibility through the use of the internet.
  • Increase in the online stores can increase the amount of competition and decline the entire production of M&S since the consumers have the opportunity to compare the price (Karadag 2015).

Environmental

  • Increasing social awareness associated with environmental factors and the essential requirement of eco-friendly business.
  • Opportunities are present with the launch of several environmental programs in China, India, and other countries such as encouraging healthy eating habits, eco-friendly clothing's for consumers with the sustainable use of materials.

Porter’s value chain analysis helps to review the primary and secondary activities of the company while recognising the areas of the organisation's achievements of the important value. Thereafter, they focus on the areas of the value that will help them to achieve competitive benefits in the market. The primary purpose of the value chain is to demonstrate the state of production and the process of delivery of the company (Teller et al. 2016). The secondary activities are those that are not directly related to value chain rather it helps to enhance the effective delivery of initial activities.

Porter's 5 Forces Analysis of XXXX Industry

Figure 2: Value Chain analysis of M&S

(Source: Karadag, 2015, p.42)

In M&S the areas of most important value are its supply chain which is represented as outbound logistics while delivering customers with high-end products related to infrastructure. In this aspect, the company has almost 798 stores that are highly available in street UK. The company’s infrastructure is also assisted by technology that is expanding itself with the growing set of e-commerce in business. In this context, the suppliers of M&S and their value chain are known as the part of M&S   internal sources that are necessary for the entire system of value for the industry (Witherow 2018).

At the stage of internal logistic M&S maintains absolute transparency about starting of the input employees as well as retailed products. In this context, the organisation begins to develop its supply chain by taking reliable suppliers that will help them to provide quality production during the stock list control. Moreover, in the case of operation M&S has the smart system of packaging experts that help them to continue offering quality and safe distribution of products (Teller et al. 2016). A smart system of packaging operations provides the customer with reputed trade awareness and convenience.

Again, in the case of outsources logistics the company tends to use multiple user systems of the warehouse that is the most essential system of mainframe base that helps in finding the direction for M&S. This process allows the company to handle and bringing the trials to be communicated to the different parts of shops thereby increasing the value of products.

After opening in China the company started sourcing its products from cheap markets that hampered the quality of the products thereby exploiting the USP of the company. However, Marks and Spencer do not have a sufficient number of outsourcing agents for maintaining supply chain and internet for maintaining the worldwide stores. The company has only 110 warehouses in the UK. Currently, M&S is following Zara, a model of the value chain for developing the source of distribution. They have, therefore, started a renewed website for the potential customer's involvement. This version of the business supply chain model aims to provide service to various markets through websites but the company has the faulty chain of supply that may be problematic.

In the case of business corporate strategy, M&S accumulated the business strategy used by Zara. Therefore, the company has planned to expand their distribution market with the emergence of 250 new international stores. In the present scenario, the company has 450 international stores. Currently, they are focusing on delivering food, beauty and lingerie products.  It has been estimated that through the plan of expansion the company is about to bring almost 40% expansion in the production (Witherow 2018).

Opportunities and Threats

Through the strategy of diversification of corporate and business strategy, they are developing new products for the merging markets as a challenging option. However, the growing economies of Russia, India and another western economy can offer them opportunities for building innovative products to the market. In this context, M&S focus on the achievements of the market expansion with the close philosophy with different product lines.

Conclusion

As a sustainable business in the UK, Marks and Spencer's maintains a strategy of differentiation that emphasises the quality as well as the value at the current state at an affordable price. However, from the above study, it is evident that the company ignored the major aspects of value and innovation. Therefore, for getting back is popularity the company needs to focus on conducting innovative and customer-oriented service thereby focus on developing innovative products with the existing features of the products. They are required to bring new ways to enhance the uncompetitive prices to bring value to their products in markets like China and India.

Since the market is the current situation for fashionable and quality clothes, M&S has to make efforts for the meeting the demands of the customers through a development of joint venture and strategic collaboration to obtain a competitive edge in the diverse market. Moreover, the company has the ability to provide appropriate product therefore, they are required to invest more in the building promotion to support innovation a supply value in fashion.

References

Bolden, Richard. "Leadership, management and organisational development." In Gower handbook of leadership and management development, pp. 143-158. Routledge, 2016.

Chimhundu, Ranga, Eric Kong, and Raj Gururajan. "Category captain arrangements in grocery retail marketing." Asia Pacific Journal of Marketing and Logistics 27, no. 3 (2015): 368-384.

Christopher, Martin. Logistics & supply chain management. Pearson UK, 2016.

Fernie, John, and Leigh Sparks. Logistics and retail management: emerging issues and new challenges in the retail supply chain. Kogan page publishers, 2014.

Hingley, Martin, Adam Lindgreen, and David B. Grant. "Intermediaries in power-laden retail supply chains: An opportunity to improve buyer–supplier relationships and collaboration." Industrial Marketing Management 50 (2015): 78-84.

Karadag, Hande. "Financial management challenges in small and medium-sized enterprises: A strategic management approach." EMAJ: Emerging Markets Journal 5, no. 1 (2015): 26-40.

Karadag, Hande. "Financial management challenges in small and medium-sized enterprises: A strategic management approach." EMAJ: Emerging Markets Journal 5, no. 1 (2015): 26-40.

Lasserre, Philippe. Global strategic management. Macmillan International Higher Education, 2017.

Nolan, Ciara T., and Thomas N. Garavan. "Human resource development in SMEs: a systematic review of the literature." International Journal of Management Reviews 18, no. 1 (2016): 85-107.

Secundo, Giustina, Susana Elena-Perez, Žilvinas Martinaitis, and Karl-Heinz Leitner. "An intellectual capital maturity model (ICMM) to improve strategic management in European universities: A dynamic approach." Journal of Intellectual Capital 16, no. 2 (2015): 419-442.

Teller, Christoph, Andrew Alexander, and Arne Floh. "The impact of competition and cooperation on the performance of a retail agglomeration and its stores." Industrial Marketing Management 52 (2016): 6-17.

Witherow, T. (2018). Marks & Spencer boss warns high street chain has 'no God-given right to exist'. Mail Online. [online] Available at: https://www.dailymail.co.uk/news/article-5940479/We-no-God-given-right-exist-Marks-Spencer-boss-warns-chain-burning-platform.html [Accessed 29 Jul. 2018].

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