The current assignment aims to deal with evaluating the contemporary theory of economics in the existing global economic history, since they are associated with the global business. The second segment of the study focuses on evaluating the strengths and weaknesses of the proposed business model along with considering strategies for improvements. In addition, the impact of global competition on the business model has been discussed as well. Furthermore, the features of the nation to be entered have been elaborated as well in this assignment along with mitigations and risks required within the business model.
Modern economic theories and key events in recent Global Economic History as they relate to international business:
The contemporary economic theories and major events in the current global economic history and their association with global business are briefly depicted as follows:
This theory has been propounded in the sixteenth century and it is one of the popular economic theories. In fact, it is the first theory of economics associated with the global business operations. According to this theory, the richness and wealth of a nation is gauged in terms of silver and gold holdings (Blackburn, Hart & Wainwright, 2013). Hence, according to this theory, the countries are needed to increase their silver and gold holdings through encouragement of exports and discouragement of imports. When viewed from other perspective, for instance, if individuals in a nation purchase more from nation 2 than the quantity sold to the first nation, which is called imports, the difference would be paid in terms of silver or gold. The primary goal of each nation is to have a surplus in trade, in which the total exports exceed the total imports. The protectionism strategy is used in this theory and it is still in use.
Adam Smith has propounded this theory in 1776 and it is the classical theory of global trade. This theory mainly lays stress on the abilities and skills of a specific nation, which produces a specific product than others (Buckley, Burton & Mirza, 2016). The trade happening between the nations would not be influenced on the part of regulations and the restriction on the part of the government policy or intervention. The flow of trade would be smooth according to the market forces and no intervention from any organisation is regulated on this. For instance, if the nation A is producing products at a faster rate than nation B, then nation A reaps the benefit of profits. On the contrary, if nation B is faster in making a product more efficiently, then it needs concentrate on specialising in production of that product.
This is one of the popular theories of global trade and it is associated with production and specialisation of one nation in more than one product, then the benefits of global trade would be reaped on that part of the nation effectively. This theory happens at the time the nation is not able to produce a specific product more effectively in contrast to the other nations (Casson, 2013). However, it could produce a product, which is better in contrast to the other nations. In other words, it concentrates more on the differences of relative productivity.
In this section, Costcutter Supermarkets Group has been selected as the organisation, which is an UK-based retail business dealing in groceries. It operates in the form of a symbol group to different independently owned off-licences and convenience stores. It has been assumed that the organisation is planning to diversify its business in the province of Australia. The business model that would be appropriate for Costcutter Supermarkets Group to enter the market of Australia in the initial stage would be to adopt the franchise model. In this context, Cavusgil et al., (2014) stated that the organisation could either be a manufacturer, retail outlet or a distributor. In addition, there is always the included constituent of the franchise firm. Furthermore, franchise takes into account the different types of business models within its own structure.
Costcutter Supermarkets Group could make direct purchase of a franchise from the franchise firm or it could purchase from a distributor of master franchise licensed to sell franchises in Australia. Hence, manufacturer, retail outlet or distributor model could be employed within the franchise business model.
With the help of franchise, Costcutter Supermarkets Group could provide its established grocery products, which might already enjoy brand realisation. This would help the organisation in enjoying the advantage of pre-sold consumer base, which otherwise might take several years to accomplish (Cuervo-Cazurra & Ramamurti, 2014). In addition, it would help Costcutter Supermarkets Group to enhance the probability of business success, as the organisation is involving with the established methods and products. Furthermore, it might offer the customers the attraction of a specific quality level and consistency, since the franchise agreement has mandated the same. With the help of this model, Costcutter Supermarkets Group would not encounter any issues like selection of site, construction, designing, financing, training and grand opening program. The ongoing support could be obtained as well in the form of training national and domestic operating procedures of advertising, operational support, management support, ongoing supervision, enhanced spending power and access to bulk purchase (Dunning, 2013).
Despite the above-mentioned strengths, the franchisee is not entirely independent (Fernandez, 2015). Costcutter Supermarkets Group is needed to operate its business in Australia in accordance with the restrictions and procedures that the franchisor has set forth. Such restrictions could be in the form of providing products and services, pricing and geographical boundary. Along with the initial franchise fee, the organisation would have to incur advertising fees and ongoing royalties. Furthermore, utmost care needs to be taken for balancing support and restrictions that the franchisor has provided with its own ability for managing business operations. Finally, the duration of a franchise agreement is limited and in such case, Costcutter Supermarkets Group has little to say about such termination.
The following strategies could be extremely useful for Costcutter Supermarkets Group in order to overcome the shortcomings of the franchise model:
In the words of Forsgren & Johanson (2014), franchise system gives three easy, sophisticated and finished products, which include a brand, a system and support of that system. The primary responsibility of the franchise firm is the brand protection on behalf of Costcutter Supermarkets Group. This is because the organisational brand helps in developing the initial impression of prospects, community and the clients.
The franchise firm needs to provide a system to Costcutter Supermarkets Group, a way for the latter to carry on with its business operations. With the help of this system, the organisation could spend a working day on selling and supporting rather than redevelopment of business models.
The impact of global competition on the proposed franchise model for Costcutter Supermarkets Group is demonstrated briefly as follows:
For mitigating global warming, the organisation needs to focus on sustainability by adopting environmentally suitable practices. In this context, Grant (2016) remarked that going green is a strong global force, which would come at a cost to every business organisation. There are a number of retailers like Woolworths Limited, Wesfarmers and many others in Australia having an approval stamp claiming that its disposal and production processes are green. As a result, Costcutter Supermarkets Group would experience an increase in production cost due to such environmental competitiveness.
The technological advancements have resulted in present global grid driven through information. Information technology is considered as a strong force, which continues to raise communication in all business sectors (Johnson et al., 2013). The existing retail firms in the Australian market are wise to reap the benefits of the different marketing platforms driven through internet. These platforms include social networks, dedicated websites, e-mail and smart phone applications. Since Costcutter Supermarkets Group would follow the franchise model to enter into the market, it is in a unique position of leveraging the technological power for diversifying its market base. This could be achieved with the help of affordable advertising on media for arriving at a sizeable number of potential customers.
The ideologies seem to compete for time, attention and resources of the individuals (Leonidou et al., 2015). The Australian residents are mostly Christians and the existing retail organisations are producing products according to the needs and wants of the customers. Hence, Costcutter Supermarkets Group would have to seek help from the franchise firm through market research in order to know the tastes and preferences of the customers. This is because few products might be decreed in Australia due to religious issues, even though the market potential is high.
The features of Australia, in which Costcutter Supermarkets Group is planning to enter, could be best described with the help of PESTEL framework and it is depicted as follows:
|
Factors |
Analysis |
|
Political |
Since Australia is a liberal capitalistic democracy, the government might decide to impose import taxes for protecting the economy of the nation (Meyer & Peng, 2016). Hence, if Costcutter Supermarkets Group decides to import products from UK, it might have to pay additional taxes in future. |
|
Economic |
Due to the higher property prices in relation to level of income in the nation, rental properties are easily available. In addition, Costcutter Supermarkets Group could rent a commercial property in Australia due to low cost; thus, providing favourable market entry conditions. |
|
Social |
The level of education has increased widely in Australia and focus has been kept on assimilating various cultural groups into the dominant British Australian traditions (Nagle, Hogan & Zale, 2016). Due to such traditions and since the organisation is from UK, it would be easier to penetrate deeper into the market with the help of a franchise firm. |
|
Technological |
In terms of technology, Australia is one of the leading nations, as every business sector could acquire the needed equipments for running their business operations (Pagani, 2013). |
|
Environmental |
The nation has the Environmental Protection Act 1974 in place to ensure that the environmental effect is considered in the decision-making process of the government. Thus, Costcutter Supermarkets Group needs to incur additional cost along with the franchise fee to enter into the market. |
|
Legal |
The government has introduced age discrimination, rise in minimum wage and increased requirements for firms related to recycling (Verbeke, 2013). Since the franchise firm would provide a new system to Costcutter Supermarkets Group, any legal changes would affect the cost of the organisation. |
|
Risks |
Mitigation strategies |
|
Identical products of the existing competitors |
Modifications need to be made in the product lines by adding news features to attract the attention of the customers (Wild, Wild & Han, 2014) |
|
Downturn in economy |
Developing a contingency plan and increasing the amount of retained earnings after consulting with the franchise firm to sustain in such situation |
|
Lack of presence in major growing marketing channels |
Obtaining information from the franchise owner about the changing technologies in the nation and recruiting an effective marketing personnel to keep up-to-date information |
Conclusion:
From the above evaluation, it has been found that the major theories of economies associated with international trade comprise of mercantilism, absolute advantage and comparative advantage. The business model proposed for Costcutter Supermarkets Group is the franchise model, since it could provide its established grocery products, which might already enjoy brand realisation. This would help the organisation in enjoying the advantage of pre-sold consumer base, which otherwise might take several years to accomplish.
The existing retail firms in the Australian market are wise to reap the benefits of the different marketing platforms driven through internet. These platforms include social networks, dedicated websites, e-mail and smart phone applications. Since Costcutter Supermarkets Group would follow the franchise model to enter into the market, it is in a unique position of leveraging the technological power for diversifying its market base. In addition, it has been found that Australia has a favourable position for the foreign firms to tap into the market. However, it needs to evaluate the risks carefully by following the recommended risk mitigation strategies.
References:
Blackburn, R. A., Hart, M., & Wainwright, T. (2013). Small business performance: business, strategy and owner-manager characteristics. Journal of small business and enterprise development, 20(1), 8-27.
Buckley, P. J., Burton, F., & Mirza, H. (Eds.). (2016). The strategy and organization of international business. Springer.
Casson, M. (Ed.). (2013). The Growth of International Business (RLE International Business). Routledge.
Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014). International business. Pearson Australia.
Cuervo-Cazurra, A., & Ramamurti, R. (Eds.). (2014). Understanding multinationals from emerging markets. Cambridge University Press.
Dunning, J. H. (2013). Multinationals, Technology & Competitiveness (RLE International Business) (Vol. 13). Routledge.
Fernandez, W. G. (2015). MGT 40: International Business Strategy and Integration.
Forsgren, M., & Johanson, J. (2014). Managing networks in international business. Routledge.
Grant, R. M. (2016). Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Johnson, G., Whittington, R., Scholes, K., Angwin, D., & Regnér, P. (2013). Exploring strategy text & cases (Vol. 10). Pearson.
Leonidou, L. C., Fotiadis, T. A., Christodoulides, P., Spyropoulou, S., & Katsikeas, C. S. (2015). Environmentally friendly export business strategy: Its determinants and effects on competitive advantage and performance. International Business Review, 24(5), 798-811.
Meyer, K., & Peng, M. W. (2016). International business. Cengage Learning.
Nagle, T., Hogan, J., & Zale, J. (2016). The Strategy and Tactics of Pricing: New International Edition. Routledge.
Pagani, M. (2013). Digital business strategy and value creation: Framing the dynamic cycle of control points. Mis Quarterly, 37(2).
Verbeke, A. (2013). International business strategy. Cambridge University Press.
Wild, J. J., Wild, K. L., & Han, J. C. (2014). International business. Pearson Education Limited.
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