Toys R Us Expansion: Evaluating Potential International Markets

Macro Environment Analysis

Toys “R” Us, Inc. is a retail organization that deals with the baby products and toys. It operates through two subsidiaries, domestic and international and offers all toy products associated with newborns to children up to four years.  It includes educational toys to games and bikes. It is the single and an only brand name in toy stores and has a strong brand name and presence in international and national markets. However, in the recent years, the company is observing declining sales due to maturity of market, low birth rates in its major markets and competition from other discount retailers such as Tesco and Aldi. In order to increase its market share, it has adopted strategy of shipping the toys and other products through both online and offline sources (Pinkerton, 2015). Moreover, it is also seeking to expand in the international markets to seek overseas opportunities. The markets of India, Russia, Sri Lanka and Nigeria have potential for international expansion. In this regard, in this report, the potential of the international markets has been evaluated. The report evaluates the most suitable market for expansion by macro and micro environmental analysis of the company. Subsequently, the report also sheds light on the most suitable entry mode for the company in its international venture.

In this section, the macro environment of the organization is examined through situational analysis.

It could be summarized that India is the best market for the organization. The external environment impacts the operations of the toy industry (Applegate and Johnsen, 2007). Although the activities of the toy industry are not restricted, there are certain legislations which prevent the toy companies to broadcast misleading advertisements. In several countries, the use of certain plush or hazardous toys has been prohibited (Gunning and Holm, 2006). It could be critiqued from the appendix that the inflation rate in Russia and India is less; therefore, they are the best internal venture prospect for the company. Furthermore, the GDP growth rate of India is better than Russia; therefore, purchasing power of customers will be high in India. The technical infrastructure of the organization is also appropriate. The ratio of youngsters is also high in the country; therefore, the company will benefit from entering into the market.

In the five force analysis, the competitiveness and the attractiveness of an industry is examined. The companies which are able to use their core competencies are able to attain a profit before average levels. The five force analysis of the toy industry is conducted in this section:

Situation Analysis

Threat of new entrants: The threat of new entrants in the industry is medium as the industry because mature and consolidated. The following competing factors show the threat of new entrants:

• While the main buyer i.e. children do not remember the specific brand, they show high brand loyalty to their favorite products (Lamb, Hair and McDaniel, 2008).
• Due to the intense competition, the profit margins in the industry are also low.

Threat of substitutes: The threat of substitutes in the toy industry is high.

• The toys are used for the entertainment purposes; however, with the technological advancements, several other modes of entertainment such as video games have also become popular among the children (Trautman, 2014).

Bargaining power of customers: The bargaining power of the customers is high due to the number of industries working in the industry.

• A large number of toy manufacturing companies exist in the market. In the countries like India, Nigeria and Sri Lanka, there are a large number of small/ medium enterprises and the unorganized sector in the toy industry which can give strong competition to the company (Shaftoe, 2017).

Bargaining power of suppliers: In the toy industry, the bargaining power of suppliers is low due to the following reasons:

• The bargaining power of customers is low as the suppliers are the raw material providers such as plastic vendors are high in number. Moreover, small-scale vendors or toy manufacturers can also be categorized as suppliers as many toy companies sell products by buying it from them. They are many in numbers; therefore, they exercise low control over customers.

Industry Rivalry: The industry rivalry is high in the industry.

• It is due to the large number of competitors in the toy industry (Shaftoe, 2017).

The value chain analysis is a significant framework which elaborates the manner in which a firm adds value to their products and examines which internal activities add the most value to the firm’s products.

Toys ‘R’ us has made several tie ups with raw material suppliers and vendors to maintain its stock. However, it has implemented the highest standards of safety and quality measures to ensure the maintenance of the product quality.

The operations of the company are divided into two categories, namely, domestic and international operations. The company has also implemented various strategies such as increasing the shopping experience of the customers and integrated store strategy to increase the sales of the organization (Toys ‘R’ Us, 2017).

The company has opened variety of stores all across the globe are integrating stores offering different product range to increase the efficiency of the operations. It has also initiated online transactions to compete with the e-retailing organizations such as Amazon and ebay. It has also entered into contracts with other retailing organizations to supply its products. Along with it, it has also adapted the contractual terms so that other retailers can also sell their items at their stores (Magretta, 2012; Drickhamer, 2005).

The company conducts a range of marketing and advertising activities to reach the target audiences. The marketing programs of the company include email marketing, television broadcast, direct call and magazine advertising. Along with it, the company has adopted various strategies such as door-to-door distribution and in-store marketing (Porter, 2008).

In order to compete with the other e-retailers it has adopted strategies to increase the customer satisfaction. It includes providing better services at the store and providing online support to the existing customers.

Strengths Excellent Brand Image (Design Council UK, 2013) High Quality Long Experience	Weaknesses Lack of innovative products High product range Lack of product diversification
Opportunities Markets in developing countries Increase in the spare income and lifestyle changes in developing countries Exploitation of global events and festivals Changes in technology	Threats Frequent changes in the trends in the toy market Cheap discount retailers and Asian toy manufacturers (D’innocenzio, 2006) Stiff competition

It could be summarized that the competitiveness in the toy industry is high. Toys “R” Us has the core competency of strong brand name and high experience. The company is facing declining profit margins due to intense competition and can expand in other countries to increase profitability. 

Competitive Factors

The 12 Cs framework is a significant framework in the international marketing as it draws upon the attractiveness profile of the international markets.

Country: The Company must be acquainted with the policies, legislative frameworks, economy and the demographic characteristics of the country in which it is venturing. Toys ‘R’ us is never operated in these countries before; therefore, it is unacquainted with the operations in these countries (Doole and Lowe, 2008). However, there are several multinational organizations operating in these countries. Nigeria is a prime country in the African subcontinent. The economic growth of the country is steady. India and Sri Lanka are prospective markets in the South East Asia. India is an attractive market as the population is young and the country is observing high growth.

Figure: Inflation Rate in India

(Source: Stat Bureau, 2017)

Figure: Inflation Rate of Russia

(Source: Focus Economics, 2016)

Figure: Inflation Rate of Nigeria

(Source: The Guardian, 2016)

Figure: Inflation rate of Russia

(Source: Colombo Page, 2016)

Since the products offered by the company are not a necessity, it is important that the company enters a market wherein the inflation rate is low. However, inflation rate in Nigeria is very high; therefore, it cannot be selected as a potential market.

• Culture: The culture denotes the values, languages, technology and arts. Several cultures do not give preference to playing with toys (Lee and Carter, 2012). The culture of all the prospective markets is positive for the toy markets.
• Concentration: In regard to the toy industry, the management has to look into the age distribution, income and population density. According to the population and the age group, India and Nigeria are the most attractive market (Nidhi, 2015). Although Russia is a large country, the population growth is on the decline and the percentage share of children is on decline. According to the latest statistics, the youth population below the age of 20 is on a surge in India and about 41% of the population is below age 20 (First Post, 2016).
• Communication: It refers to the communication channels and media available for broadcast. It also includes the preference of the people towards different communication channels. The technology and infrastructure of Russia and India are most technical advanced.
• Channel of Distribution: It involves, mode of transportation, infrastructure of the location and different marketing channels. If the company plans to invest in India, Russia or Nigeria, it has to focus on the transportation mediums and distribution strategy, since these countries are large in area. In Sri Lanka also, the company has to rely on water or air transport to import products from other countries which requires additional authorization from the government. Since the infrastructure in India and Russia is better than other countries, they are most suitable for investment.
• Capacity: The capacity of the customers denotes the purchasing power of the consumers to pay the specific products marketed by the company. According to the purchasing power of the customers, Russia and India are the most attractive markets (Nidhi, 2015).

Figure: Per capita income of India

(Source: Abraham, 2009)

The purchasing power of Indian customers is on a surge as the per capita income of the consumers is increasing. It is a developing economy and increase in GDP will positively impact on the spending trends of the consumers.

• Currency: It is important that the organization enters a market whose local currency is acceptable in other countries and stable in nature. The currency of all the countries is stable.
• Control and coordination: The control and coordination activities refer to the ability of the organization to control the marketing and other operational activities in other countries. The organization should have clear objectives, policies and coordination of agencies and distribution channel so that the organization can reach its performance criteria.
• Caveats: The caveats refer to small but significant details such as local risks, political stability, economic trends and company reputation (Kotabe and Helsn 2009). The company has high reputation and brand name in all the major markets of the world.
• Commitments: The Company should be focused on providing effective quality and service so that it can compete with local competitors.
• Choices: It refers to the choices in terms of the marketing mix and which strategy will be most suitable for the prospective market.
• Contractual Obligations: Every country has its own set of legislations regarding the payment terms, conditions, warranties and guarantees (Paliwoda and Thomas, 2013).

According to the market attractiveness analysis, it could be stated that India has the highest potential as a prospective market. It is due to the majority of youth in the population as well as high purchasing power of the economy.

The decision to enter the foreign markets has a significant impact on the business of the organization. There are basically, two modes of foreign market entry, equity and non-equity modes. The non-equity modes include exporting and agreements with the foreign countries whereas equity modes include establishing joint venture and strategic alliance with the local partners. In this regard, Toys “R” Us can use the market entry mode of exporting. It is the best strategy for the company to enter the Indian markets as it has operations in several nearby Asian countries such as China and Malaysia. It can transport the goods from these countries to the Indian market. In this strategy, the company will have control over the foreign markets and can develop better relationships with the target market and the buyers. The company will also have a better protection of the unique products and technology. Although this market entry mode requires high investment in terms of time and resource, the company will have a better control over the brand image and can maximize its profits overtime. Therefore, exporting is the most suitable method for the organization (Tielman, 2010).

India is a developing country with promising economic growth and significant amount of young population. The share of the working population in the economy has increased which has impacted positively on the sales of the toys. In this regard, in this section, the marketing mix of the company is presented. The marketing mix of the company is defined as the set of actions or strategies that a company uses to increase its market share and promote brands or products in the market.

Product: Toys “R” Us needs to attract the customers’ attention by adapting the products according to the local taste or preference of the consumers. In this regard, it requires gathering market intelligence regarding the current social trends. It can also introduce toys according to famous local superheroes, movies and local character. Moreover, international toys can also be introduced in the market (Richter, 2012).

Price: According to the above analysis, the share of the working population in the economy has increased. Therefore, the purchasing power of the families has also increased. The company needs to set appropriate pricing strategy according to the quality of the products and its brand image.

Promotion: The Indian customers are different from other countries. The population is more emotional; therefore, the company needs to device a promotional strategy which is in alignment with the current market.

Place: In the current scenario, the market of India is selected as the target market (Richter, 2012).

Conclusion

In this report, it can be concluded that venturing in the international markets is significant for the organization. Toys ‘R’ Us is a prominent brand name in the toy industry. The company should explore other international markets to ensure its success. In this regard, the internal and external analysis of the organization has been conducted to identify the potential markets. India is an attractive market for the organization due to its share of young population and economic growth. The company can enter the market with exporting and suitable marketing mix. In the marketing mix, the product and the promotional campaigns should be adapted according to the local preferences of the customers.

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