International business is the term that defines the business overseas. It is very much essential for the companies to expand their business to other countries in order to withstand the competition in the industry (Daniels, Radebaugh, Sullivan and Salwan, 2009). Tesco is one of the major players in supermarket industry of UK. This company has expanded its business overseas with great and effective strategies (Tesco plc., 2017). It is required to analyze the environment of the country in order to enter the market.
Analysis of the industry refers to analyzing the factors of the industry that affect the functioning of the firms in the industry as well as the behavior of consumer towards the industry. To analyze the industry, there are various tools present. The most effective tool is given by Porter that is Porter’s five forces analysis:
Porter’s five forces analysis: (Tesco)
Porter’s five forces analysis can be defined as the tool that helps in analyzing the factors such as competition, bargaining power of buyers and suppliers, threat from substitutes and threat of new entrant for the company (Cairns, Marie Doherty, Alexander and Quinn, 2008).
Threat of rivalry: As far as the supermarket industry of UK is considered, it has been determined that the industry is very much competitive in nature. It is saturated with large number of companies that provides same type of products to the customers. In case of Tesco, it is one of the major market player in the industry still have high competition from companies such as ASDA, Sainsbury and Morrison’s. All the three companies have different competitive advantage and strategies to target and attract customers (Alexander and Doherty, 2010). ASDA is the company that focuses on value based products while Sainsbury is the company that has the strategy to provide quality services and products to the customers. To compete with these two big companies, Tesco has modified the strategy from selling low cost to the strategy of balance. Now, the company focuses on selling the high quality products with keeping the price competitive. This is because the company has to serve large number of customers and earn the revenue at the same time.
Threat of substitutes: The main substitutes for supermarket in UK are the discount stores and online retailers (Etgar and Rachman-Moore, 2008).. The popularity of discount stores and online retail stores results in opening of the companies like Ocado. As the financial situation if UK is not that much stable so most of the people are moving towards discount stores. However, as far as the food item are considered, the threat from the substitutes is still not that much high fir the supermarkets because supermarkets like Tesco allow the customers to purchase every food item under one roof with comparatively low process then retail stores (Kumar, 2008). In case of non-food items such as clothing, the company has greater threat because the exclusive stores serve the customers with high quality and large variety as well.
Bargaining power of buyers: Bargaining power of buyer can be defined as the power of the buyers to take decision over the pricing of the products. In case of supermarket industry with respect to Tesco, the bargaining power of buyers high. This is because the customers have lot more options available for them to buy the same kind of products (Gadema and Oglethorpe, 2011). The homogeneity of the products results in low switching cost and thus the buyers of Tesco have high bargaining power as compared to the company. This is reason Tesco is the company that has made many efforts in understanding the needs of the customers with the strategy of “Club card”. This strategy helps Tesco to track the customers changing needs and trends. This helps the company to enhance the customer’s loyalty towards the brand.
Bargaining power of suppliers: Bargaining power of suppliers in case of supermarket industry is fairly low. This is because there are any suppliers available in the market for the big retailers. Suppliers are more in need of this retailer to sell their products as these big retailers act as the mediator between the customers and the suppliers. Tesco is a very big and well-known brand. Thus, it is the supplier who needs to get ready over the prices what Tesco is saying if they want to have business with such a big brand (Braun, Altan and Beck, 2014).
Threat of new entrants: As far as the threat f the new entrants is considered. It has been analyzed that this threat is very low in the supermarket industry in UK. This is because it required a huge capital to invest in order to establish the company in this industry. The major brands of the industry such as Tesco, Sainsbury, and ASDA etc. have already captured a large market area and thus there is no place for the new competitors to enter the market and establish their business.
The government of UK has interference in the functioning of the industries in the country. The government of UK provides the framework on which the companies in the industries function. The main Policy of the UK government that affects the supermarket industry of the country is the competition policy (Morgan, Kaleka and Gooner, 2007). The reforms have been made in the competition policy of the country in order to suppress the anti- competitive behavior of the major market players. This is because such behavior and attitude of the big players in the supermarket industry results in suppressing of the small retailers to enter the business. As most of the market share of the industry is acquired by the big four companies in UK, thus the small retailers cannot be able to compete and come up (Mohd Roslin and Melewar, 2008). This behavior also affects the consumers as the big players of the industry decide the prices of the products and ruins the competition in the market. This overall practice of the companies harms the customers as they have to pay the price fixed by the companies.
In order to analyze the attractiveness of the country for a particular industry, it is required to analyze various factors such as social factors, political and legal factors, economic factors and other environmental factors that have their impact on the functioning of the business in the industry (Kader, Mohamad and Ibrahim, 2009). This section describes the above stated factors with respect to supermarket industry in different countries. PESTLE analysis of the country is conducted in order to analyze the impact of such factors in the industry.
The supermarket industry of Malaysia is very much important for its economy. The three major retailer or supermarket firms in Malaysia are CGH, Tesco and Carrefour. The market share of the companies is 55 percent, 25 percent and 17.5 percent respectively. The rapid development of supermarket industry in the country results in development of other supportive industries such as agro-based and dairy industries.
Political analysis: Malaysia is the country that has multi-party democracy. The country is also facing the issues of corruption (Hassan and Rahman, 2012). This corruption acts as the barrier for the foreign companies to set up their businesses in the country. This is because corruption may create problem for the company’s in rem o investments. Malaysia has been ranked 47 among 180 countries in terms of corruption by Transparency International.
Economic factors: The vibrant economy of the country attracts the foreign businesses to set up their firms in the country. From last 10 years, it has been observed that the economic growth of the country is 7%. The high rate of economic growth of the country attracts the business like Tesco, IKEA, and Carrefour to enter the country for their business (Humphrey, 2007).
Social factors: Malaysia is the country that has diverse population. The data suggests that country has 60% of the local population, 30% of Chinese population and 10% of Indians resides in the country. This makes the country as the place of population with diverse culture. The mix of these relations results in large number of celebrations in the country and thus enhances the needs of the products among the people (Rahman, 2015). Due to diversification in the population, the companies that are serving the market have to modify their products and services in different ways according to the needs and requirements of the customers. Thu, this cultural aspect of the country provides a large and diverse market for the supermarket kike Tesco to serve.
Technological factors: As far as the technological environment of the economy is considered, it has been analyzed that Malaysia in the country with a self-contained intelligent city called Cyberjaya (Metzger, 2014). It is the city that is very well structure with the technological framework. It is the place that attracts most of the business because of its technological advancement. It is considered to be as the major city that supports the business and outsourcing of business functions in the world.
Legal factors: The legal factors involve the business laws of the country. Most of the businesses laws of Malaysia are according to the British system (Johnson and Tellis, 2008). Thus, the company like Tesco can easily adjust in the legal framework of Malaysia because it is based at UK.
Environmental factors: The country is facing high criticism in terms of the environment of the place. This is because of high rate of deforestation that is affecting the rare wildlife of the country. Thus, the western countries have to think twice before investing in this country.
After analyzing all the factors, it has identified that Malaysian supermarket industry is competitive but the environment of the country des not support the foreign investors to invest in the country (Belz and Peattie, 2009).
Market size: Indian supermarket industry is very much competitive like UK. The expected growth of this market is 15 percent every year and the business is expected to be of Rs.47 trillion by 2017 (Jain and Haley, 2009). Indian supermarket industry also supports other companies to set up their businesses here.
The overall analysis of the industry can be done by conducting PESTLE analysis of the place.
Political factors: The political system of the country is very much stable and is democratic in nature. It has been analyzed that many political parties are here that participates in the election and fair election takes place in the country (Hirst, Thompson and Bromley, 2015). The government of the country has made some of the policies regarding international trade, deregulation policy etc. these policies help the country to develop its economy. The government of the country supports FDI at high level; this is because it supports the foreign companies to settle their business in the Indian market and supports the country to earn foreign revenue.
economic factors: The economy of the country is very stable and string and is affected by many factors such as inflate rate, tax rate, interest rate etc. in 1991, the reform have been made in the policies of the government so as the reduce the industrial licensing and improve liberalization framework in the country (Beck, 2015). This help in incoming of foreign companies to set up their business in India with ease.
Social factors: The social factors majorly affect any business or industry in India. This is because India is the country of diverse culture and the people with different culture have different beliefs and choices of products. Thus, companies have to maintain that balance of range of products according to the culture of the local people along with westernized design of the product. The Indian people now days are accepting the western culture and thus are very much fond of things that are influenced with the same. Tesco is the company that can easily take over the market by providing the westernized products to the customers but with Indian touch.
Technological factors: As far as the technology of the company is considered, most of the people in India are very much techno savvy and finds it very easy to use technical tool for shopping. Online shopping is become very popular in India and thus helps the foreign companies to enter the market with online business. India is the developing country as thus provides a great scope of enhancing business.
Environmental factors: The environment of the country is not favorable el for the foreign investor to make investment here. This is because of high increase in pollution rate of the country. But, this can also helps the supermarket to provide healthy products to the customers in order to attract them (Kofman and Youngs, 2008).
Legal factors: It is not easy to set the business in India. This is because the government of the country has passed many laws such as Essential commodities Act 1955, Standards of Weight and Measures Act 1969 etc. that needs to be followed by every company. Any practice that is below the standards set can be subjected to intense legal punishment by the judiciary system of the country.
PESTLE analysis:
Political factors: UK government influences the functioning of supermarket industry in many ways. They provide the framework for proper functioning of the companies in the industry. One of the legislation that has been passed by the government in UK regarding this industry was grocery Code Adjuster Act 2013. This Act has been passed to suppress the power of the large enterprise so that equality can be maintained in the industry.
Economical: As per the current scenario, the inflation rate in UK is high and thus affects the purchasing power of the people there. The companies like Tesco and Morrison has observed decline in food sales. The rise in petrol prices forces the people to buy things online and thus the retail stores business have been affected in negative way by this practice.
Social factors: As far as the social factors of the environment are considered, globalization is the main factor that has affected the supermarket industry in UK. This is because globalization results in entry of the foreign companies to settle their business in UK (Potter, Mason and Lalwani, 2007). The companies like ASDA are giving tough competition to the local supermarkets and thus affect the business.
Technological factors: Online businesses are the most popular technological advancement in the industries these days. The supermarket industry in UK is getting so much affected by such online businesses. As per the data, it has been analyzed that 15% of the total grocery retail sales in UK is from online sources of shopping (Thompson and Martin, 2010). Thus, the companies like Tesco has to implement some of the strategy I order to compete with these online stores.
Legal factors: There are many laws that have been passed by the UK government in order to control the business of supermarket industry in the country. The legal laws such as environment law, capital market law, antitrust law etc. needs to be considered by the supermarket industry in UK.
Environmental factors: As per the analysis, it has been identified that the population of UK is becoming conscious about the environmental issues in the country and thus the companies such as Tesco needs to make extra investment in making the processes of the businesses environment friendly.
|
India |
UK |
Malaysia |
|
|
Political factors |
Very Favorable |
Favorable |
Unfavorable |
|
Economic factors |
Favorable |
Slightly favorable |
Favorable |
|
Social factors |
Favorable |
Favorable |
Favorable |
|
Technological factors |
Favorable |
Favorable |
Highly favorable |
|
Legal factors |
Favorable |
Favorable |
Favorable |
|
Environmental factors |
Favorable |
Slightly unfavorable |
Moderate |
According to the comparison made, it has been analyzed that Indian supermarket industry is most attractive industry out of the three because it provides a good and favorable environment for the foreign businesses to set up their businesses here with enough efforts.
Favorable entry modes for Morrison in India:
The most favorable entry mode that needs to be selected by Morrison for entering India is joint ventures. There are many reasons associated for making such decision. Some of them are discussed below:
As far as the ownership strategy of the companies is considered, it has been analyzed that partnership can be the best suited ownership for Morrison to enter the Indian market. As the company enters the market with joint venture, partnership is most suitable in such case. Partnership firms have many advantages in India such as it is very easy to register partnership firm. As the number of partners or the owners has increased so this results in high number of resources that can be used for running the business. This is also referred to as the safest method as it helps in sharing the risks (Griffin and Pustay, 2015).
As per the Chinese market analysis, it has been identified that the market of China has a very competitive market as all the foreign retailer brands like Carrefour and Tesco has already established their business here. Morrison needs to enter the market as the country has large population thus provide large customers base. Franchise can be considered as the best suited method to enter; this is because franchise stores allow the company to be recognized by its own name in the country and also makes it easy to enter the market with the help of local distributers. This method helps the company to overcome the challenges such as language issues and cultural involvement on business. This is because the franchisees stores that are licensed by the local distribute are already well acknowledged with the market of chain as well as its culture.
Regulations on the Administration of Commercial Franchise Operators are the authority that regulated franchising business in china. According to this regulation, the franchisor must have the requirements such as capability to be an enterprise, capability of providing franchise, at least two directly operated stores, well established operating model etc.
The franchisee business requires the ownership strategy of sole traders. It is easy for Morrison to deal with a single owner who is opening a franchised business in china as compared to several owners (Beamish, 2013). This Sole trader is the best suited strategy for this case.
Conclusion:
As per the analysis, it has been identified that the supermarket industry in UK is very much competitive and thus require the companies like Tesco to enter the new market. After comparing the environment of the three countries such as India, UK and Malaysia, it has been identified that India is the most favorable country which has the most attractive supermarket industry. The best entry method can be used by the retailer company to enter India is joint venture while to enter China, franchisee can be best suited for any supermarket like Morrison. The above discussion suggests that it is very important to analyze the environment of the country before entering into the new market.
References:
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