In consequence with the globalization, the organizations in the developed countries are facing increasing competition in their domestic market. Therefore several companies are now expanding their business in the foreign market as well. Morrisons is a famous retail chain which is the fourth biggest chain of retail supermarkets in United Kingdom founded in 1899. The organization is the distributer of goods that owns and operates more than one hundred supermarkets and other stores. Generally the company is based in UK however the company is expanding due to the increasing competition in the domestic market. China is a market that have shown a record growth in the macro economy under the effect of the softening the global economy which reflects a modest growth in the retailing in the current years (Haley and Haley 2013). Entering into the Chinese retail market requires a detailed strategic planning as the growing significance in the retail sector shows an increasing competition. Several existing companies in the market have continued the intense competition in the non grocery and grocery channels and faced huge pressure due to the widely implemented channels, especially the online selling. On the other hand the accessibility of the retail goods are increasing each day with the steady growth of the retail stores in the market (Christopher 2016). In this situation Morrisons needs a clear understanding of the market and the macro environmental factors. This report will trigger the analysis of the market and the strategic statement of the company while they plan to enter the Chinese retail market.
The developing market in China offers huge opportunity for the foreign investors however; retail sector offers an easier access. Despite having the economic downturn in the international market, the retail sales in the Chinese market have grown up to a minimum of 15% almost every year. The per capita disposable earnings in the urban areas has reached to a point which is almost triple than it was few years back in the year 2009. The analysts have shown that the average per capita income in more than $3000 in the advanced cities like Shanghai and Beijing. However, due to the wide difference between the income group in the urban and rural areas, the buying power and the demand of retail goods vary in a vast way (Dent 2015). According to the statistical data, while the urban areas come in the list of being most prosperous in the country, the rural areas have ranked the lowest in the sales of retail goods.
The PESTLE analysis is doe to understand the factors of change in the retail industry in China.
The retail sector of China is not much considered as a prestigious industry by the government, therefore it is not authorized to be a heavy industry sector and it does not get much political help form the government. For instance, it can be said that, when the French hypermarket Carrefour came in the Chinese retail market, it ignored the general rules and regulations, but the government did not pushed it do that. It exemplifies that Chinese government have not yet realized the need of restricting the rules for the development of the industry. However the local government is now changing and remaking the tradition street market of China which is generally called the wet markets (Verbeke 2013). The government has taken initiatives to make the street markets as the supermarkets. The sole reason of doing this is to expand the network of the retail industry into chained supermarkets in the western provinces of China. For the past thirty years the economy of China has changed widely. Initially it was a centrally planned system that was entirely closed for the international business, however now the retail market of china has turned into a more market oriented economy which is growing rapidly and became one of the main factors in the global economy. The Chinese retail market has been open to the foreign investors since 2001, because of the entry of China in the WTO that primarily removed the barriers of business for the overseas investors. Therefore the current scenario shows that only one third of the companies in the retail industries are controlled by the government.
The economic growth of the country is very much significant for the foreign investors. In China the GDP growth has been consistent for the past few years. The domestic demand of the retail industry has remained strong in the past years however, it is predicted that the domestic consumption will increase because of the overall growth of the wages. In China the corporate income tax rate is 25%. However the special tax rates are also available for the organizations which are investing in the specific regions and sectors, especially in the western provinces. Therefore it will be beneficial for Morrisons to invest in the retail industry in China (Baker 2014). Another benefit comes from investing in China that generally most of the products originate from here. Therefore if the local suppliers are competent enough to provide the required products according to the global quality standard, both the foreign investors and the domestic suppliers will be benefitted.
The growth rate of the general population of China is around 0.6% with the average life of an individual citizen of around 73 years. The age distribution of the country can be characterized by three groups; 19.8% of 0 to 14 years, 72.1% of 15-65 years, and 8.1% of 65 years and above. This is because of the one child policy that was introduced by the Chinese government in the year 1979. The demographics show that the middle age group is the largest ones who will primarily help in expanding the retail business in the Chinese market. It was also find out that Chinese consumers are concerned regarding the safety of the product due to their previous experiences. For instance, many years back thousands of children were poisoned as the milk was contaminated with industrial chemical melamine (Kurnia, Karnali and Rahim 2015.). The cultural norms may also be challenging for a new retail chain as implementing an entirely new foreign format on the Chinese consumers might turn into a severe rejection of all the supermarket chains. Also as the living standard of the general Chinese population is quite high, therefore almost all the households have refrigerators, so the general shopping trend might not change as well.
Technological advancements are necessary for any business just as the retail sector. However, China does not have a well structured infrastructure for the distributing channel. Therefore Morrisons has to establish a web of warehouses at tactical locations, as the country has a vast landmass, in order to outsource the product distribution channels. The company would also need a powerful distribution partner who has wide-ranging domestic knowledge, so that it is easier for them to take the first step in the retail market (Siebers, Kamoche and Li 2015). Also Morrisons needs to find suppliers who have the necessary IT knowledge for being integrated into the existing distribution channels. This might be a serious challenge for the company.
The Chinese government has banned all the usage of plastic bags which shows a positive step towards the safe environment. Therefore the decision also illustrates the positive environmental decisions that can be taken in a rapid manner and may involve essential changes. The Chinese government also made continuous efforts for introducing the recycling programmes through the social and national progress plans. Also china has become sensitive to the topic of pollution because of the global pressure (Murray 2014). Therefore Morrisons should take care of these environmental issues while they enter the retail market as they have to deal with the strict control on the organizations.
China has several rules and regulations and other government policies which may have a direct impact on the operation of the foreign companies who are having trade relations within the country. Also the policies of the government for controlling the monopoly and reduction of the purchasing power of the consumers may limit the entry of the foreign traders such as the required license and the access to the raw materials.
Porter’s five forces model
The profitability of any industry depends on the competitive structure which is again dependant on the interaction amongst the five underlying forces. These five forces are the potential participants, substitutes, buyers, suppliers and the competitors of the industry. Therefore while analyzing the competitive structure of any industry needs a detailed examination of the five forces and the interactions. Furthermore, while studying the retail industry, the competitors within the industry should be divided into two groups; intra type competitors and inter type competitors, as there is a huge variety of the format of the retail industry (Siebers, Kamoche and Li 2015). In the context of the Chinese retail industry, it is important to consider all the subparts in a separate manner.
Conventionally the retail industry of China is severely regulated by the state government as it is a significant part of the designed economy of the country. The above figure illustrates the basic dogmas of the theory with the core meanings of the strategies that have developed from the dogma for the governance of the channel, the obstructions against the competition that was implied by the taken strategies and the consequence of the implementation of the strategies.
Fundamentally, there are four dogmas that concern the public ownership, income distribution, planned economy and competition. While being consistent with the dogmas, there is a series of the policies that may be designed for the channel governance. If the strategies are adjusted, the core meanings of those strategies need to be maintained. In fact these strategies work as an obstruction for protecting the existing retailers in the industry, especially the state owned or the collective owned retailers, even if they have a poor performance in the past years. These dogmas are showed in the figure 1. It can be found out that there are several competitions from various directions that are restrained and depressed (Yu, Choi and Zhang 2015). As a consequence of implementing the strategies within the industry, the ownerships within the industry have been filtered at the expense of the service quality, channel efficiency and the performance of the retailers.
The conventional structure of the retail competition in the Chinese market has been pictured in the Figure 2 in Appendix. Firstly, the government builds up the obstructions that isolate the distribution channel from the new entrants. The preprogrammed plans regulate the new entries which are believed to reflect the needs for the population. Secondly, within the distribution channel each member has a fixed role to play, however, the cross functional roles are played as well. Under the unified policy the manufacturers are not supposed to sell the products for the best offered price rather they have to sell the products to the authorized buyers in the market. The authorized buyers are usually the specified wholesalers and in return to that the producers or the manufacturers of the goods would not be responsible for the unsold stocks. Briefly it can be said that the retail industry of China is protected by the policies of government which has set up the obstacles for several external forces (Murray 2014). As a consequence to that the collective and state owned retailers have dominated the industry despite performing poorly in the past years. Therefore for any foreign investor it would be a little difficult to cope up with all the regulations. Morrisons should have a detailed examination of the government policies before entering the Chinese market.
Resource Analysis of Morrisons
Morrisons has a strong international brand identity that can position the company above all the other competitors even in a new market by itself. The brand identity is the primary reason which offers the consumers to choose a specific company from other competitor companies in the market. Though a long time, Morrisons has won several awards that indicate its strong brand image and the perceptions of the consumers about the brand. Morrisons has always focused on the need of the consumers as they believe that the value of the organization are the centre of the business and that defines what exactly the consumers expect from them and what the company expects from its employees (Morrisons 2017). Morrisons offers the consumers a distinct value for the money on several fresh and fancy products with the essentials for the daily life. They offer not only fresh meat from the expert butchers along with the fresh vegetables but also several essential things for the regular life. They always have something for each individual. It has also developed its supermarket chain opening around 455 outlets within UK.
Morrisons gets the financial resources from different earnings and shares the revenue. The market share of Morrisons is shown in a graph in the figure 3 of Morrisons.
The primary goal of Morrisons is to implement the right people at the right place while this requires a well structured training and development of the new employees as well as the existing ones (Morrisons 2017). Morrisons hires its employees through a detailed hiring process for different sections such as finance, consumer care, Inventory services, management, and internal audit functions and trains them so that they can deliver a wonderful service to the consumers.
Competency Analysis of Morrisons
(Murray 2014) has defined competency as the collective learning of a specific organization, especially the coordinating ability of the distinct production skills and the different streams of technology. The core competency is the skills of the organization. It is a distinctive tool that measures the competitive advantage and growth for the future. Morrisons is fourth largest retail chain that is based on UK; however it also expands its business around the world. The brand image of Morrisons is quite powerful. The company has won several prizes in the retail industry which made the brand image as a distinct name in the industry. Morrisons is the giant supermarket chain that offers a huge range of products that includes clothing, books, electronics, furniture and many more (Khanna and Palepu 2013). It also provides online shopping that makes the consumers reach to its product easily. The organization has several projects to attract the consumers towards itself in the competitive market such as discount coupons, brand cards etc.
The threshold competencies involve the primary knowledge, motives, skills, image, traits and the societal role which are essential while performing a job. The threshold competency of Morrisons would be the god brand image as they have not been involved in any kind of scandals. They also have patents for their own products. The distribution system of Morrisons is also well structured (Tian 2016). However it should be noted that the existing competencies might not work in the Chinese market as it is a completely new market to explore. Therefore Morrisons should have a thorough strategic analysis of the market before entering.
Current Strategic Statement of Morrisons
Figure 1 Current Strategic Statement of Morrisons
Source – (Morrisons 2017)
Due to the uncertain business scenario in UK, Morrisons has planned to explore the market in Asia and China is a potential market that is developing in a right pace. Moreover, if Morrisons can keep the focus on improving their supply chain management it would improve their distinct value in the market. In addition to that, the company should have a clear marketing plan while entering the market as only the promotions will not be sufficient in the competitive market. Using correct marketing strategies Morrisons can reach more market shares and they will be able to formulate more margins in their other business sectors.
(“Morrisons | Online Shopping and new low Prices,” 2017)
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