Morrisons UK is one of the largest supermarket chains in the world headquartered in the UK. It ranks behind Tesco, Asda and Sainsbury’s in terms of revenue and is the fourth largest supermarket chain in the UK. It was founded in 1899 by William Morrison and since then expanded in various parts of the UK. There are about 515 stores of the company in England itself and it has also expanded in other parts of the world. It operates in various formats such as brick and mortar store format and online retail and concession store to increase their market coverage. Morrisons is leading behind the other four major retail chains operational in the UK and has used extensive marketing campaigns and advertising methods to increase its market share. As a result, the company abandoned its previous logo and slogan to present a more modern look to the customers (Ahmed, 2015). In addition to it, the company has also ventured into a number of international markets to increase its customer base (Morrisons, 2017). The growth strategy and market expansion of a business organization involves formulation and implementation of the business strategies developed by the analysis of the strategic resources and internal and the external environment of the business organization (Sadler, 2003).
In this regard, in this report, a market expansion strategy has been proposed for the company to enter into the Chinese market. The external environment and the internal environment of the company have been examined through various frameworks and a business level strategy has been proposed for the business organization.
China is considered as the most attractive business destinations due to its size, cheap labor cost and the economic growth. However, conducting business in the Chinese market is difficult due to its uniqueness and the government legislations. The external factors which can impact the business in the country are examined through PEST analysis.
Political factors: China is a communist state. The people’s republic of China is a single-party governed state and the laws and legislations in the country are strict. The tariffs are high in the country, which are slowly declining. In 2006, the country became a member of WTO and since then opened its economy for the foreign enterprises. However, there is still skepticism about the political environment of the country as it is noted for discriminatory practices, difficulty in obtaining licensing and approvals and less friendly attitude towards the foreign enterprises (Kroeber, 2013).
Economic Environment: In the past years, the Chinese economy has realized exponential growth and presently has become one of the largest economies in the world. Other factors which can affect the business of the organizations are abundance of the skilled and cheap labor, market size and the increased purchasing power of the customers. Although the inflation rate of the has also increased suddenly which can impact the business of the
Figure: Inflation Rate of China
(Source: Ulick, 2017)
Social Factors: The social and cultural factors impact the consumer preference and taste in a consumer market. Moreover, the family structure and the age distribution also impacts on the consumer preference. There are other social factors such as lifestyle, education, religion and emigration which can impact on the retail business. The literacy rate of the country is high and most of the population is fashion conscious. Moreover, the majority of the population is internet user which can increase the trend of the internet shopping (Zipser, Chen and Gong, 2016).
Technological Factors: China is advanced in terms of technological infrastructure and telecommunication technology. The major technological issue while working in China is that it has localized developed technology and payment systems (Coy, 2016).
Porter’s Five Force Analysis
The porter’s five force analysis can be used to examine the intensity of competition in the industry. In China, the retail industry was strictly controlled and regulated by the government as part of its planned economy (Magretta, 2012). However, with the opening up of the Chinese economy to the foreign companies, several changes have occurred in the Chinese retail industry.
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Porters’ Five Force |
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Threat of New Entrants: High |
· New government policies to low barriers to entry · Relaxed control over operational scope |
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Threat of Substitutes: Medium |
· Major substitutes are catering, hotels and wholesalers · In the recent years, with the boom in the local tourism and catering and the hotel industry have grown substantially |
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Bargaining Power of Customers: High |
· Customers can exercise power to buy from one retail store or another |
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Bargaining Power of Suppliers: Low |
· Due to increased sourcing (Zhuang, Herndon and Zhou,2003) |
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Industry Rivalry: High |
· Departmental stores, specialty shops, clothing stores and general stores · With the recent opening of the economy, the industry rivalry has increased drastically |
The value chain analysis of Morison’s has been conducted to examine which activities are most important for value creation in the organization. All the business activities of the organization can be divided into primary activities and the secondary activities.
Primary Activities:
Firm Infrastructure: The infrastructure of the company is apt for its operations. It has acquired several related companies such as Farmers Boy Deeside, Kiddicare and Simpley Fresh to increase their operations. In its online operations, the company is using Ocado infrastructure to launch online food service (Rigby, 2013).
Human resource management: As a retail organization, Morrisons gives special focus to people, motivation and communication which have positively impacted on the productivity of the organization. IT has taken several HR initiatives which have reduced the labor turnover by 40%. It provides employee training in different skills to increase their profitability (Woods, 2009).
Technology Development: Morrisons is the fourth largest retail chain of the UK and made considerable investment in technology and developing the e-commerce platforms for the organization to attain core competency (Sillitoe, 2013).
Procurement: In procurement, the company obtains a vegetables and manufactured products from the suppliers. It has implemented several quality measures to control the product quality. It also follows stringent certification policy to provide highest quality products at its retail outlets.
Supporting Activities:
Inbound logistics: It has a vertically integrated supply chain wherein the company has its own bakeries, farm suppliers and food preparation factories. The fresh products are procured from these sources.
Operations: In the recent years, the company has implemented various strategies to increase the efficiency in the operation. It has implemented training procedures for the human resource professionals as well as implemented market street stores wherein the customers can buy the food products of their choice from the markets.
Outbound Logistics: It has a large number of retail outlets and distribution centers spread all over the UK to increase their outreach to the customers.
Marketing and Sales: It uses celebrity endorsements and high profile advertising on television and other broadcast channels (Brinded, 2013). It also sponsors several charity programs in the UK.
Services: Morrisons has taken several initiatives to decrease the customer response time as well as provide friendly and flexible environment to the customers.
There are six elements of the current strategy and mission statement of the organization. The company aims to strengthen the brand by becoming more competitive, provide the customers with better services, adopt local solutions, develop popular and useful services, simplify services and make supermarkets strong again (Morrisons, 2017). The vision statement of the company is, ‘Food Specialist for Everyone’. The current strategy and vision of the organization is in alignment with the market situation of the company. In order to develop its core competency and increase competitiveness, the company needs to provide effective services and transfer maximum value to its customers. As per the above analysis, if the company wants to venture the Chinese market successfully, it has to adapt to the needs and preferences of the local customers. The retail sector of China is saturated and matured; therefore, it is important that the organization implements strategies to increase the competitiveness of the organization. In order to attain significant market position, the company should implement strategies to ensure that the company can provide best possible quality to the customers’ at best possible price. In the retailing industry, the local solutions refer to the delivering solutions which best suit the customer’s needs. Therefore, the company can enter the Chinese market with the current strategy and vision.
SWOT analysis is a structural planning method which evaluates the strengths, weaknesses, opportunities and weaknesses of a business organization. The SWOT analysis is carried out to examine the strategic fit between the core competencies of business organization with the external environment (Hill and Jones, 2009). In this regard, this section conducts the SWOT analysis of Morrisons.
Strengths:
The major strength of the organization is its brand value and strong market presence. It also has efficient, robust supply chain and distribution network and has a diversified product portfolio. Being one of the four major brands, it has a strong financial background and infrastructure. It has strong human resource policy and employee strength (Nasdaq, 2017).
Weaknesses: Limited geographical presence with dominant presence in only the UK market. Other than that, the company suffers from product return.
Opportunities: The mist significant opportunity for the organization is the expansion in the international markets. There are numerous unexplored markets wherein the company can grow its customer base. In addition to it, there is also growing market for organic products and demand for the private labels. The company can also expand its private labels to attract more customers and save in expenditure.
Threats: The primary threat to the company is the increasing competition in the retail industry. Other than that, the changing government polices to reduce the market dominance of the major players in the industry as well as reducing the barriers to the industry are also significant threat to the organization. The increase in the manpower cost can also negatively impact on the business of the organization.
The business organization pursues internationalization to increase profitability by expanding their market share, learning and reducing the economies of scale. There are three primary strategies that a business organization uses to expand its operations in global domains. They are internationalization, localization and globalization. In the internationalization strategy, the companies develop and offer products which are functional in any geographical location regardless of its culture or language. In the localization strategy, the companies adapt the products and the services to the local market preference (Hines, 2013). In contrast to it, in the globalization strategy, the companies implement the strategies of bringing a local product to the international market which involves sales and marketing (Dunne, 2006). As per the above discussion, it could be examined that Morrisons adopts the strategy of localization. It has implemented various strategies wherein the company adapts the product or the format of the retail outlets according to the local consumers. In the localization strategy, the companies acknowledge the diversity in the international market and consider that the purchasing habit and the preference of the consumers are shaped by their local culture. Several companies have adapted to the cultural differences of the local markets so that the marketing strategy and product does not offend the cultural sentiments of a country.
In the present context, the market entry mode of franchising can be used to enter into the international markets. In franchising, the semi-independent business owners pay fees or royalties to the companies in return of their brand or trademark. The companies sell the products or the services by using the business format or system of the parent organization (Hoy and Stanworth, 2014). The franchising agreements are for longer duration and offers broad resources and other supports by which the franchise can run its own operations easily. The benefits of franchising model of international expansion are low political risks, low cost, ability to expand operations in different parts of the globe and experienced partners can bring operations and managerial capabilities to the organization (Thomas, 2007).
Conclusion
Morrisons is one of the leading business organizations which deal with the retail business across the UK. The company is one of the four major supermarkets of the UK and it has a large number of stores spread all across the country. It has a limited presence outside the UK and; therefore, it should pursue the internationalization strategy. In the same context, the Chinese market gas been examined for is market attractiveness. China is a communist country; therefore, it has strict laws and legislations. While entering the Chinese market, it has to examine different laws applied to the retail sector and adapt the business accordingly. Other than that, the economy of the country is strong and growing which is optimistic for the company. It can be deduced that the company has a strong infrastructure, technology implementation and skilled workforce. The market entry strategy of franchising has been selected for the company to enter into the foreign market. In this strategy, the company charges some fees to the independent business entities which work on its name. The company provides training and other support so that the franchisee can operate efficiently. It is selected in the present context due to the political environment of the foreign market.
References
Ahmed, A. 2015. Comment: Morrisons’ may be trying a new logo but it needs old-fashioned retail nous. [Online.] Available at: https://www.retail-week.com/analysis/opinion/morrisons-may-be-trying-a-new-logo-but-it-needs-old-fashioned-retail-nous/5079396.article [Accessed on: 9 March 2017].
Brinded, L. 2013. Morrisons’ Ant and Dec Bet: Are Celebrity Endorsements Worth It? IB Times. [Online.] Available at: https://www.ibtimes.co.uk/morrisons-ant-dec-celebrity-endorsements-420743 [Accessed on: 9 March 2017].
Coy, P. 2016. China Spends More on Infrastructure Than the U.S. and Europe Combined. Bloomberg Business Week. [Online.] Available at: https://www.bloomberg.com/news/articles/2016-06-15/china-spends-more-on-infrastructure-than-the-u-s-and-europe-combined [Accessed on: 9 March 2017].
Dunne, K.J. 2006. Perspectives on Localization. John Benjamins Publishing.
Hill, C. and Jones, G. 2009. Strategic Management Theory: An Integrated Approach Strategic Management Series. Cengage Learning.
Hines, C. 2013. Localization: A Global Manifesto. London: Routledge.
Hoy, F. and Stanworth, J. 2014. Franchising: An International Perspective. London: Routledge.
Kroeber, A. 2013. China Is Still Risky for Foreign Businesses—but the Rewards Are Too Great to Ignore. The Atlantic. [Online.] Available at: https://www.theatlantic.com/china/archive/2013/07/china-is-still-risky-for-foreign-businesses-but-the-rewards-are-too-great-to-ignore/278238/ [Accessed on: 9 March 2017].
Magretta, J. 2012. Understanding Michael Porter: The Essential Guide to Competition and Strategy. Harvard Business Press.
Morrisons. 2017. About Us. [Online.] Available at: https://www.morrisons-corporate.com/About-us/ [Accesssed on: 9 March 2017].
Morrisons. 2017. Strategy. [Online.] Available at: https://www.morrisons-corporate.com/about-us/strategy-structure/ [Accessed on: 9 March 2017].
Nasdaq. 2017. UK’s Morrisons reports first annual profit rise in five years. [Online.] Available at: https://www.nasdaq.com/article/uks-morrisons-reports-first-annual-profit-rise-in-five-years-20170309-00109 [Accessed on: 9 March 2017].
Rigby, C. 2013. Morrisons will use Ocado infrastructure when it launches its online food service in January. Internet Retailing EXPO. [Online.] Available at: https://internetretailing.net/2013/05/morrisons-will-use-ocado-infrastructure-when-it-launches-its-online-food-service-in-january/ [Accessed on: 9 March 2017].
Sadler, P. 2003. Strategic Management. Kogan Page Publishers.
Sillitoe, B. 2013. Morrisons playing retail technology catch-up. Essential Retail. [Online.] Available at: https://www.essentialretail.com/in-store-ops/article/5232d3709607d-morrisons-playing-retail-technology-catch-up [Accessed on: 9 March 2017].
Thomas, D. 2007. Franchising For Dummies. John Wiley & Sons.
Ulick, J. 2017. China Factory-Gate Inflation May Spike Most Since 2008: Chart. Bloomberg. [Online.] Available at: https://www.bloomberg.com/news/articles/2017-03-08/china-factory-gate-inflation-may-spike-most-since-2008-chart [Accessed on: 9 March 2017].
Woods, D. 2009. Morrisons’ HR director claims investment in people development has contributed to its strong performance. HR Magazine. [Online.] Available at: https://www.hrmagazine.co.uk/article-details/morrisons-hr-director-claims-investment-in-people-development-has-contributed-to-its-strong-performance [Accessed on: 9 March 2017].
Zhuang, G., Herndon, N.C. and Zhou, J.N., 2003. The transforming structure of competition in China’s retail industry. Journal of Marketing Channels, 11(1), pp.27-51.
Zipser, D., Chen, Y. and Gong, F. 2016. Here comes the modern Chinese consumer. [Online.] Available at: https://www.mckinsey.com/industries/retail/our-insights/here-comes-the-modern-chinese-consumer [Accessed on: 9 March 2017].
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