Discuss about the Internationalisation Strategy Report for American Style.
The main aim of this paper is to emphasize the international business capstone by taking Gap Company. Internalization is the process which is taken in use for planning and executing products and services so that they can effectively be adapted to definite local languages, process, and cultures called localization. The world has become changed due to the latest technology and the role of internationalization amplifies the involvement of entities in international markets. The expansion of company will be done in Berlin, Germany. The organizational structure and the strategy of the company will be elaborated under this research with company’s competitive advantages. Valuable components regarding the expansion of business in Germany will be undertaken by this paper in a significant way.
The Gap Inc. was founded by Donald and Dorish Fisher in 1969 with simple idea. The Headquarter of the company is situated in San Francisco. The company is considered as the umbrella brand of sub-division companies entailing Banana Republic, Intermix, GAP and Old Navy. This company was founded by Donald and Dorish because they were unable to find out the pair of jeans that fit and initiated their first store in San Francisco. The brand name “The Gap,” was invented in indication to the generation gap. The Gap brand offers a variety of products in different styles ranging from casual to classic and modern. The major aim of the company is to attract a youthful, catching spirit with the freedom to define the individual style. The clothes of this brand are available in more than 90 countries with 3,727 stores worldwide and 135,000 total employees.
The company generates profit every year in a huge way that is why it is required for the company to expand its business to Germany because of Germany’s economic standing and Berlin’s demographics. Berlin is a cultural hub due to a huge range of international travelers and residents, along with that; it is considered a foremost city that controls art, music, fashion and politics. More than 10 million international travelers attract towards it (Milward, 2015). The company makes clothes and the objectives to set fashions that focus a youthful market. Furthermore, it would be a great opportunity for the company to make its existence in Berlin which could be utilized as a foundation to build other export opportunities all through the rest of Germany.
The internationalization motives different categories of motives but in the context of market seekers, the main focus of the company is on the demand aspects. The main purpose of the company is to be a market seeker because the motive of the company is to invest with the intention of supply goods and services. The government of Berlin is stable that can encourage investments from Gap Company in other countries. There can be a number of incentives like subsidized labour and trade barriers might attract companies to invest in these countries (Brush, 2013). The purpose of the company is to reach new markets and limitations of the home market. There are numerous reasons why the company should expand its business in Germany in which one of them is that products and services might have to be getting used to needs, trends and tastes on a specific market. It is necessary for the company to have the direct presence in the local market, as companies that are not near to markets might have a drawback in adapting services and goods (Cuervo-Cazurra, Narula & Un, 2015).
The company has major three international competitors that are recognized in Berlin for Gap Inc. The gap is an ever-present clothing retailer which majorly selling jeans, jackets, Khakis and T-shirts. There are some retailers in Berlin such as Zara, H&M and Uniqlo are challenging with each other at the time when all of them have physical stores in Berlin. It has been found that Arthur L. Peck, CEO of the company face the issue of reduction of sales and determined to attain the new strategy called ‘rebuilding of the product processes, which would be facilitated in cutting the prices and pay more attention to the last fashion products. The main focus of its competitors to provide latest trendy clothes to the customers which can become the threaten point for the Gap Company. As per the group concepts of Michael Porter’s strategic, not all competitors compete with each other; this indicates that H&M and Zara can have the feature of direct competitors due to having same customers that is young people. The indirect competitor of the company is Uniqlo which is providing similar things as a component of broad service offering (Arrigo, 2013).
The Gap Company has more than 800 fashion stylists and label workers in Berlin in which more than 5.4 million people live in and there are around 123 million people visit the capital each year. Germany is the new country and it is essential for the company to evaluate each and every factor before entering the market of Berlin. Liability of foreignness is a well-known concept in international business domain that refers it is the insight that organization faces social and economic costs at the time of operating their business in foreign countries (Bell, Filatotchev and Rasheed, 2012). The rules and regulations of Berlin is quite different from the US that is why it is required for the company to learn the rules of Germany in a quick manner. Liability of foreignness is the major risk of international business as the foreign companies have lower survival rate in comparison to local companies. It is essential for the company to take appropriate action to prevent the risk of liability of foreignness. It can be done by the company while entering into the new markets with the thinking of go global and think local. There should be experienced intermediaries to maintain the operations of the company in an effective manner. Along with that the company must keep in mind to remain culturally as the culture difference might bring adverse situation for the company (Korsakiene, 2014). The main aim of German is to maintain professional when doing business with other countries.
The Gap Company competes with locally, nationally and internationally department retail stores. The company will focus on online businesses, discount stores chains, and independent retail stores. The company has no physical stores in Berlin but the customers of company can purchase their products via online from other countries. It has been found that the customer prefers to do online shopping instead of going to physical stores due to its convenience services. The company got positive responses from the customers that are why the company has launched a few online websites across some countries (Ferreira & Otley, 2009). In a comparison of Zara and H&M who majorly consider the fast fashion clothing. The company can attain huge competitive advantages as the Gap offer season fewer clothes which are more classic which defines that the customer of H&M can fed up after three years with same fashion, but the fashion of Hap will never be faded. Furthermore, Gap Inc. provides the number of discount to the customers on the products. Younger generation gets attracted towards lower prices clothes with full of quality instead of going with high quality and expensive clothes.
The organizational strategy of Gap Inc. is effective as it adopted the cost-plus strategy within the organization for attracting a number of customers towards the services. this strategy is facilitated in adding up all costs and is sold at an added percentage, in this case 600% for GAP logo jackets and 500% for men’s jeans (Gap Inc., 2015). The company is planning to launch its Gap-logo jackets and jeans with a ‘loss leader’ strategy in the first three months in Berlin for the purpose of making an establishment of position from global, local and international competitors in the fashion industry market. The main aim of loss leader strategy is to make build brand awareness, attract potential customers and inspire small development in the market. Gap Inc. will provide 300 bags of free goods for every purchase made on the day of the starting and sell limited editions jackets and jeans (Smith, Ansett & Erez, 2011).
The organizational structure of the company is hybrid integrative specific components of divisional and hierarchical organizational structures. Gap organizational structure has the following pattern:
There are some barriers to entry such as monopoly, legal protection and corruption. It is necessary for the company to protect its intellectual property such as patents, trademarks and copyright, it is likely to suffer losses in the market. Cultural barrier is another major barrier which can enhance the difficulties for the company, along with that, competition, customer services, currency exchange rates, government policy and product differentiation are major barrier that can become the hurdle for the company to enter in the market of Germany (Fletcher & Crawford, 2014). Government tax policies greatly affect the profitability of a firm. The companies of Germany have to pay around 15% tax on profits and this percentage is not higher aim comparison of home country in which the rate of Australia is at 30% (Deloitte, 2016). It is required for the company to consider this legal framework on their exports and imports, tariffs, and standards. It has been evaluated that in Germany, there is no requirement of import declaration or permit to import. Although there is Common External Tariff (CET) is applicable for those countries that are outside of the EU trade systems. There is currently no Free Trade Agreement (FTA) between Australia and Germany.
Market expansion is feasible and the joint venture strategy would be the most appropriate strategy for the company. A joint venture market entry provides GAP a chance to enter into an agreement with two or more parties to attain their aims. This agreement is featured by costs, risks, shared assets and returns. The joint venture is usually a separate business entity and it has a number of advantages such as gain new capacity and expertise, improve speed to market, diversification and synergy (Frederick, 2015).
In the context of staffing philosophy, it has been found that the ongoing clients of Gap Inc. expect from the company to find them the effective possible candidates, whether the company is endeavoring to replace a departing employee, involving a new headcount and in many cases, offering them with a permanent employee where the company have had growth with a temporary employee (Gunnarsdóttir et al. 2009).
The company has to face many issues at the time of entering in the international market that is why it is required for the company to protect itself from inflation rates that are presented in the German Market that amplify the general price level of goods and services. There can be other issues related to the commitment and motivation that can impact the products reach and distribution capabilities (Delios, Gaur & Makino, 2008). Along with the company should understand the economic standards of another country in a more significant manner and define the business plan of the company to access the global markets. Tax codes and compliance issues are the major concern for the company which should be considered by the Gap Inc. at the time of entering the market. Local competition is the major issue for that company that wants to expand its business international level because it is not easy to win over a foreign customer to faith over the brand when the same product is made in their home country.
Conclusion
It has been concluded from above report that the expansion of business in other country is not an easy task but it can be done in a more significant manner with evaluating the business strategies and international barrier of host country. The report has been made of Gap Inc. Company that deals in the fashion industry and expanded its business in Berlin, Germany. The discussion has been made on its key competitors Zara, H&M, and Uniqlo. It has been found that Doing business in Berlin would be a great opportunity for a business to enlarge because they have a strong economy, and will easily catch the attention of millions of customers.
References
Arrigo, E., 2013. Corporate responsibility management in fast fashion companies: the Gap Inc. case. Journal of Fashion Marketing and Management: An International Journal, 17(2), pp.175-189.
Bell, R.G., Filatotchev, I. and Rasheed, A.A., 2012. The liability of foreignness in capital markets: Sources and remedies. Journal of International Business Studies, 43(2), pp.107-122.
Brush, C., 2013. International entrepreneurship (RLE International Business): the effect of firm age on motives for internationalization. Routledge.
Cuervo-Cazurra, A., Narula, R. and Un, C.A., 2015. Internationalization motives: sell more, buy better, upgrade and escape. The Multinational Business Review, 23(1), pp.25-35.
Delios, A., Gaur, A.S. and Makino, S., 2008. The timing of international expansion: Information, rivalry and imitation among Japanese firms, 1980–2002. Journal of Management Studies, 45(1), pp.169-195.
Deloitte, 2016, corporate tax rates, Available [online] <https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-corporate-tax-rates.pdf> Accessed on 14th June 2018.
Ferreira, A. and Otley, D., 2009. The design and use of performance management systems: An extended framework for analysis. Management accounting research, 20(4), pp.263-282.
Fletcher, R. and Crawford, H., 2014. International Marketing – An Asia Pacific Perspective. 6th Ed, Pearson
Frederick J., 2015, Germany Ecommerce Market, Available [online] <https://www.pfsweb.com/blog/2016-german-ecommerce-market/> Accessed on 14th June 2018.
Gap Inc., 2015, 2015 financial report, Available [online] https://www.gapinc.com/content/dam/gapincsite/documents/GPS%202015%20Annual%20Report.pdf>. Accessed on 14th June 2018.
Gunnarsdóttir, S., Clarke, S.P., Rafferty, A.M. and Nutbeam, D., 2009. Front-line management, staffing and nurse–doctor relationships as predictors of nurse and patient outcomes. A survey of Icelandic hospital nurses. International journal of nursing studies, 46(7), pp.920-927.
Korsakiene, R., 2014. Internationalization of Lithuanian SMEs: Investigation of barriers and motives. Economics and Business, 26, pp.54-60.
Milward, A.S., 2015. The German economy at war. Bloomsbury Publishing.
Smith, N.C., Ansett, S. and Erez, L., 2011. How Gap Inc. engaged with its stakeholders. MIT Sloan Management Review, 52(4), p.69.
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