PESTLE analysis has been done for the companies and the result suggests that the country that is best suited for the international expansion of Sainsbury is Estonia. Poland is the least suitable country as there is a lot of corruption involved in the politics of the country and ranked high in the corruption list of Transparency International (Williams and Horodnic 2015). The bureaucratic system is totally corrupt and the banking sector controls the finance in the country. Moreover, the trade unions are causing hindrance for the overall development of the business sector. Poland is not technologically sound and is does not focus much on innovation. The country wants to increase the usage of renewable source of energy so it is not viable for Sainsbury to invest in this kind of a market (Jensen 2015). Sainsbury has a diversified portfolio and deals with retail, banking, oil, and gas. Sainsbury will face a stiff competition in the banking sector if they want to expand their business in Poland. The sector being the main control element of the finances of the country it is not all wise to compete with the local market. The retail sector will also face problems due to the immense number of trade unions, which will hamper the expansion of the business of the company. Poland is mainly focusing on the usage of the renewable sources of energy, which will also be a problem for the oil and gas segments of the company. The company does not have any favorable conditions, which the company can exploit for its own benefit.
Hungary could have been considered as a viable option for international expansion but the legal environment is not suited for the expansion. The country has a good economy but the economy is mainly focused on the foreign trade. However, the economy and the corresponding environment is not suited to meet the requirements of Sainsbury (Los 2016). Hungary is the hub for foreign investment and many companies have already made their entry into the Hungarian market so the entry barriers are quite high. The company had already tried to enter in to the market of Egypt and has failed miserably so Sainsbury should take the risk of entering into a highly competitive market.
Estonia is a small country having a stable economy and is very lucrative in nature. The economic growth of the country is very high and is considered among the top companies in the European union. The country is considered as the best option for investment because it has a very strong structure in their economy (Pina 2014). The regulations for business are quite lenient and friendly; labors available at cheaper rates and the financial institutions have surplus capital. The country has made a transition into the area membership of euro and the fiscal policies of the corresponding government are credible. Estonia has been deeply impacted by the Soviet Union when it was a part of it. The country has been affected by the land pollution and majority of the country’s energy is dependent on the non-renewable sources of energy (Šommet 2013). The company has a diversified portfolio and can very well capitalize on this untapped market. The market in Estonia is untapped and the economy of the country is growing at a rapid rate. The company will not face much of barriers while entering into this market because of its liberal laws. The oil and gas segment of the company is well suited to the needs of the country and retail as a whole is promising market. The Gross Domestic product of the company is high and when compared to the remaining two countries it has the highest Gross domestic product. The taxation system is fair and liberal and is creates an opening for companies to enter into this market.
Estonia has spent 2% of their totally GDP on research and so Sainsbury will not face any difficulty in respect to the technological requirements. This is safest area to invest for the company and Sainsbury had incurred losses due its failure in Egypt. The overall population of the country is low so it is easy to capture this market. The diversified portfolio of the company can be utilized to their fullest in Estonia as it fits the exact requirement of Sainsbury. The comparative analysis clearly depicts that there is no better choice than Estonia (Juuse, Endresen and Kattel 2016).
The five forces used for planning of the strategic process and analyzing both the external and internal factors (Anton, 2015). These factors can affect the business processes of the company both positively and negatively. The model provides a step wise analysis of the various factors and their affect the company.
Estonia retail industry is mainly consists of local and foreign companies. The four main foreign companies, which are currently occupying the market, are Maxima Group, S Group, ICA AB and Stockmann. These are the major players of the retail industry and mainly have their base of operation in the neighboring countries of Finland and Latvia. These companies pose a threat to Sainsbury as they have already established their market in Estonia for a long time and have been there for almost centuries. However, Sainsbury will have an advantage in the market due to their diversified portfolio and will help in establishing their supremacy in the market. Coop Estonia is the most successful retail company of the year of 2016 and has mainly catered their market to the rural areas (Guay 2014). The focus of the company is on image building, price and assortment and they have been successful in acquiring customer’s loyalty.
However, the other company having a large market share is Maxima who have enhanced their performance but still undergoing loss because of their large sum of investments. Therefore, it can be established that the company that is going to pose a threat for Sainsbury is Coop Estonia as they have developed a loyal brand of customers. Sainsbury will have to focus on establishing their market catered to the well-established cities so that they can increase their customer base.
The substitutes that can hamper the business of the company are the online retail stores and the forecourt convenience stores. The online retail are increasing in number resulting in the decrease of the conventional retail stores in the country. However, there are advantages of a conventional retail store, which cannot be replaced by online retail outlets. The forecourt retail stores are the new trend and cause a problem for the company (E. Dobbs 2014). Sainsbury has a diversified market segmentation and should establish their own forecourts in their corresponding retail outlets. Estonia has a growing economy and the retail market is booming so this is the ideal time to capitalize on the market. The electricity and fuel production of the country is mainly coal and oil shale so the company may will have a problem of being a substitute of the variety of products offered by the company.
The buyers have a lot of power as they have the option of choosing the various retail outlets in the country. Therefore, it is very important to build a customer base for increasing their share in the market. The market in Estonia is open and all the customers have high-income ranges which increases their purchasing power (Elsner 2014). Coop Estonia has a strong customer base so Sainsbury will have to change their unique selling proposition for gaining competitive advantage. The company will have to sell customized products and change the marketing mix accordingly. Sainsbury will have to serve premium products as the general people in Estonia have high-income index. Moreover, the forecourt convenience stores is the upcoming trend and the company can very well capitalize on this situation.
The products are catered to the premium market so the products will be imported from outside the country. There has to be definite difference between the category and type of products served by the company otherwise, they will lose their unique selling proposition. However, the suppliers in United Kingdom has power in their hands as shortage in delivery will affect the business in the overseas market as the company is relatively and is yet to establish a proper image in the Estonian market (salis–fieri 2013).
The entry barrier in the market is very low and the company will have no trouble in setting up their business. However, these favorable conditions are available for the other new entrants of the market. The business laws are liberal in the country and it attracts the attention of new entrants. Moreover, the market economy is as its best possible state at the present moment and the retail industry is growing in an immeasurable rate (Kalvet 2016). This is the best possible economic state for any country and the conditions for entry are also the best that a company can ever imagine. This economic boom will not stay forever, it is bound to be a fall, and so it is best to capitalize on the situation that has aroused. However, the competition in this quite high and so will be a little difficult in the initial phase to establish their own market.
From the above analysis, it is being recommended that Estonia will be the suitable market to enter for Sainsbury. Retail sector of Estonia is the most booming sector among the chosen countries. However, it is important to analyze the internal environment of the organization to determine its competitiveness in entering a new market. Thus, to analyze this phenomenon, VRIO framework will be used in this report (Lin et al 2012).
According to the VRIO framework, the first aspect to be considered is the value created by the product or service offered by the organizations. In the case of Sainsbury, they cater to the retail market mostly of first moving consumer goods (Poulis and Poulis 2012). Therefore, they do not possess any products of their own rather they retail the manufactured items to the end customers. Retail goods are the most common and widely available items in the market. Thus, there is nothing new in their product portfolio which will increase the perceived value of the customers. However, catering to retail market will have certain advantages also which may add value to their products.
Product differentiation is one of the value creating aspects in retail sector. Sainsbury offers huge and diversified product category catering to same market segments. It creates more options for the customers. More options will add more value of Sainsbury to the customers. Price leadership is another aspect for adding value in the retail market (Seaton and Waterson 2013). In the home market of Britain, Sainsbury maintains price leadership in offering products at competitive prices. Therefore, in the new market of Estonia, it will add value to the customers and also helps them to gain a foothold in an already crowded market. It will act as the competitive advantage for Sainsbury. Catering to huge volume of items helps them to decrease the average cost of retailing. It further enables them in maintaining price leadership in the market.
According to this aspect of VRIO framework, an organization will have competitive advantage if they possess any products which are not available to the other organizations. Unique or exclusive resources help an organization in creating temporary monopoly in the market. One of the key disadvantages for Sainsbury is not having any unique or exclusive products in their portfolio. Sainsbury caters to the retail sectors and thus, they do not possess any products which are not available to their competitors. In the retail sector, all the competitors have same resources and they operate in the same price segments (Kirzner 2015). Thus, it will prove a challenge for Sainsbury to gain foothold in the new market of Estonia without having any exclusive product category.
This aspect of VRIO framework states that, organizations having products which are costly or difficult to imitate due to other reasons possess more competitive advantages in the market. However, this aspect will also prove as a challenge for Sainsbury due to their type of operating area. Sainsbury operate in the retail market and it is unlike for any retailers to possess any strategic product which cannot be imitated by its competitors (Casadesus-Masanell and Zhu 2013). Retail items are not only sold by Sainsbury, rather the same products are being sold through all the players in this sector. Thus, the products are easy to imitate and the customers have various options of substitute product. Therefore, Sainsbury do not have any strategic advantages in entering the Estonian market.
The last aspect of VRIO framework is the organizational structure, management and the policies of the organizations that will enable to optimally utilize the available resources. In addition, organizational structure determines the competitiveness in the market and how effectively they are reaching to their customers (Mahmoudsalehi, Moradkhannejad and Safari 2012). Sainsbury is already a prominent player in their home market and has established goodwill and reputation among the customers. They have tons of experience in this sector and know how to effectively manage all the stakeholders in this sector. Thus by entering in the market of Estonia, they will not face any challenges regarding their management. With the same resources and products similar to its competitors, Sainsbury will be able to gain foothold and market share in the new market with the help of their experienced management.
In the present business scenario, several business organizations are exploring for the global market to reduce the business risk associated with the operation in a single market (Terpstra, Foley and Sarathy 2012). However, different organizations take different routes to enter in to the global market which is suitable for them. Exporting is the most commonly used mode of entry by the organizations in the global market. However, organizations take different approach of exporting. By direct exporting, goods are being exported to the host country directly by the exporting organization without having any intermediaries. The main advantage of this strategy is having the control over the operation in the host country. Moreover, goodwill and reputation can be generated more effectively due to the presence in the host country.
Another type for export is to indirectly exporting the products through the intermediaries or agencies in the host or in the home country (McCann 2013). In this case, organizations do not have any presence in the host country. Their products are just being imported by the importers. The main advantage of this strategy is the absence of high initial cost incurred due to establish the presence in the host market. In this case, exporting organizations do not have any responsibilities regarding the sales of the products and after sales service.
Licensing is another strategy in venturing in to global market. This strategy involves issuing license or permission to the organizations in the host country to use trademarks, patents and technology (Verbeke 2013). The licensee is being given limited rights to operate on behalf of the licensor in the host country. In exchange of this license, licensee has to pay royalty to the licensor. It helps the holding organization to reduce the cost of building operating facilities in the host countries. However in this case, any mishaps with operations of licensee will affect the market value and goodwill of the licensor. This strategy is more applicable to the organizations that have good brand value in the market.
Franchising is a broad form of licensing. This strategy is also being used to enter in to the international market (Cavusgil et al 2014). In this strategy also, the franchisee will have to pay royalty to the franchisor to operate in the host country but with having more rights and resources from the franchisor. Normally, franchising deals with the end customers. In franchising strategy, franchisee receives the trainings and equipment for the operations. The main advantage of this strategy is same as the licensing of not have to incur huge initial investment for establishment. Moreover, franchising enable the franchisors to maintain a universal interface in front of the customers. It helps them in generating brand identity among the customers around the world.
Turnkey projects involve an organization in establishing its operational facility in the host country by transferring the technology from its home facility (Cavusgil et al 2014). Organizations establish another facility just like their home facility in the hoist country. This enable them to generate profit by operating their and to reduce the cost and complexity associated with the import and export. Goodwill and brand identity will be also high due to the physical presence in the host country. However, risk associated with this strategy is also higher. In case of any mishaps in the host country, organizations may have to incur lose for the whole manufacturing facility.
Acquisitions are one of the most popular modes of entering in to the international market. Nowadays, organizations are acquiring establishments in the host country (Phillips and Zhdanov 2012). These enable them in having access to the ready to operate facilities in the host country. This will reduce the time incurred in establishing a new production facility in the host country. Moreover, the goodwill and reputation associated with the acquired organization will also helps the acquiring firms to venture in to that market.
Joint venture is another form of mode of entry in to the international market. This strategy involves joint partnership with the domestic firm in the host country and the firm originating from the home country (Killing 2012). It helps the global organization in utilizing the resources of the domestic firm as they will have more expertise in operating in the host country. Domestic firm will also get advantage of influx of technologies and equipment from the global organization.
Having analyzed all the entry modes in the international market and the strengths and weaknesses of Sainsbury, it is being recommended that acquisition strategy will be the most suitable strategy. By implementing the acquisition strategy, Sainsbury will have the most effective entry in the market of Estonia. The sector where Sainsbury is operating is very brand sensitive sector. Therefore, option of exporting is not viable for them. Franchising and licensing will also not be a suitable for Sainsbury because; any mishaps will affect the brand name of them. Also, Sainsbury will not have the control over the operation in the Estonian market in these strategies. Turnkey project will increase the business risk of Sainsbury in the Estonian market. Turbulence in the political environment of Estonia will affect their operation and will lead to huge loss.
However, acquisition strategy can prove beneficial for Sainsbury in entering the market of Estonia. Acquisition will enable them to take over a ready-made organization along with their operational facility in the Estonian market. Even though, Sainsbury have experienced in the retail sector, however, they will lack knowledge regarding the taste and preference pattern of Estonian market. Thus, acquisition will enable them to have the access of the human resources and equipment of the acquired domestic firm. In addition, Sainsbury can utilize the goodwill of the acquired firm in the Estonian market. In case of any mishaps, the risk of loss will also be lower than that of turnkey project.
Reference
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