Going International: Taking a Local Business Overseas - Assignment Example

? Going International: Taking a Local Business Overseas (Harrods) Executive Summary This report is a comprehensive investigation into the processes and strategic potentials for the international expansion of Harrod’s department stores into Dubai. Within this context of investigation, Harrod’s company background has been examined as it provides insight into long-term organizational viability. A PESTLE analysis of the Dubai region has been conducted that demonstrates the area is highly viable for international expansion. Specifically, the area has a high ex-patriot population that would constitute a ready consumer base. Additionally, the political and economic climate is open to corporate retail operations, as there are highly minimal import and tax rates. Porter’s five-force model is supplied in examining this competitive environment. Management and company considerations are also advanced, with the recognition that a polymorphic approach be established. Additionally, human resource planning is considered, with the recognition that the Dubai operation must remain highly cognizant of cultural differences between the two regions. Finally, general strategic considerations are examined in relation to the differentiating features of the United Kingdom and Dubai stores. Introduction The nature of globalization has increasingly created a world environment where international business expansion is not only possible, but also required for continued organizational success and prosperity. Within this spectrum of recognition, this report considers the need and viability of Harrods department store to expand into the Dubai market. While Harrods department store has been in operation since the early 19th century, the current economic climate presents an opportunity to expand into this Middle Eastern region. Among the considerations in these regards is the understanding that the robust retail environment poses a strong area where Harrod’s can expand their sales operation. Specifically, Dubai’s large ex-patriot community and consistency economy create these potentials. There is the recognition that the low import tariffs also create a situation where Harrod’s can potentially acquire additional resources and more cost effectively expand business operations. Finally, and perhaps the most important recognition, is the understanding that the Western economic system is in a state of widespread recession. Expanding into the Dubai region then presents a strong means of risk diversification. Company Background Harrods is a department store that was originally formed in 1834 (‘History of Harrods,’ 2012). The company was founded by Henry Edward Harrod in the United Kingdom (‘History of Harrods,’ 2012). The company was originally formed as a grocery store chain. Throughout much of the 19th century the company stayed within this mode of operations. As Henry Harrod gradually ceded organization control to his son Charles Digby Harrod, the organization experienced a significant strategic shift. Charles Harrod began incorporating more retail products into the company specifically selling medicines, perfumes, stationery, fruit, and vegetables. Beginning with this change in 1880, the organization experienced rapid expansion. In 1883 a fire constituted a major setback for the company, yet the organization persevered and was able to reconstitute itself and make its Christmas deliveries (‘History of Harrods,’ 2012). Since this tumultuous early period the organization has experienced tremendous growth and prosperity. In 1895 the company became the first store in England to implement an escalator (‘History of Harrods,’ 2012). This recognition is symbolic of the organization’s growth throughout the 20th century as it followed a generally upward and progressive trend. In 1914 the company opened its first and currently only foreign branch in Buenos Aires, Argentina (‘History of Harrods,’ 2012). In 1919 the company would purchase Manchester department store, Kendals, and expand further (‘History of Harrods,’ 2012). The mid-20th century witnessed the first sale of the company as the organization was purchased by the House of Fraser. In 1985 the Fayed Brothers purchased the company for a reported ?615 million (‘History of Harrods,’ 2012). In 1994 the organization experienced another significant shift in ownership control as the Fayed Brothers entirely severed ties with the House of Fraser, with the later becoming traded on the public stock exchange (‘History of Harrods,’ 2012). In 2010 the company experienced a tremendous organizational change as the company was purchased by Qatar Holdings, the sovereign wealth fund of the State of Qatar. Throughout the entirety of this period the organization experienced general growth and stability. Today approximately 300,000 customers visit the store on a daily basis, making it one of the most popular and successful retail environments in the United Kingdom. Notably for the contextual concerns of this research the organization services the highest proportion of customers from non-English speaking countries than any in the United Kingdom (‘History of Harrods,’ 2012). The company sells a wide range of products and services. These products include clothing for men and women, electronics, sporting goods, jewelry, health and beauty supplies, stationery, house ware, and furniture. The company frequently adds and subtracts consumer products within this spectrum of goods. PESTLE Analysis of Dubai Market Political Environment The political environment demonstrates a strong amount of considerations for the potential entrance of Harrod’s into Dubai. Dubai is recognized as constituting one of seven emirates within the United Arab Emirates. While this organized political body originally formed as a way to more powerfully and strategically negotiate oil prices, in recent years it has functioned to advance international diplomacy and business relations. In the context of Harrod’s international expansion then this constitutes a significant political advantage through the added stability it offers. Along with Abu Dhabi, Dubai is the only state within the United Arab Emirates that holds veto power over critical matters of the national legislature. This is significant in terms of concerns related to the political stability of the region. Still, the United Arab Emirates has a number of drawbacks. In these regards, it is differentiated from Western political nations in that it places an increased emphasis on dynastic authority. Dubai itself operates within the framework of a constitutional monarchy. This demonstrates greater consistency as the current monarchy --- the Al Maktou family – has been in power since 1833 (Krane 2011, p. 19). The current ruler is Mohammed bin Al Rashid Maktoum. This is a significant concern within the context of Harrod’s potential international expansion into the region as it demonstrates that a strong degree of reliance can be placed the stability and consistency of the current political environment. Dubai is generally second only to Abu Dhabi in political control. In terms of political functionality, the states within the United Arab Emirates must abide by agreed upon legal, political, military, and economic functions. This is a federal framework that also operates with local civic laws. Highly significant for Harrod’s expansion into the region is the recognition that the United Arab Emirates has an open trade policy. Specifically, there are no protective duties and minimal import restrictions (Krane 2011, p. 21). This makes expansion into the region viable as importing the large variety of goods to constitute the store environment would not be made cost prohibitive by import tariffs. Additionally, the United Arab Emirates is a member of the World Trade Organization (WTO) (Krane 2011, p. 23). This grants the organization greater access to export and import prices. The region’s lax trade restrictions not only creates a viable retail environment, but also may constitute a strategic advantage over United Kingdom locations that must operate within more stringent tax and import restrictions. Within this mode of recognition there is additionally the consideration that Dubai has a number of free economic zones (Krane 2011, p. 24). These economic zones offer infrastructure, plots, warehouses, and factories. These economic zones are then recognized as constituting major strategic advantages through the creation of a robust retail sector. This robust retail sector is further enhanced by the strong legal framework for businesses in the region, as the government has a long-standing commitment to liberal economic policies. Ultimately, while there are a number of potential limiting characteristics in terms of monarchic government structure, the region’s long-standing political consistency and open import policies make the area ripe for international retail expansion. Economic Environment There are a number of economic considerations that are relevant for Harrod’s potential expansion into Dubai. As a member of the United Arab Emirates Dubai is entrenched in a region that is highly reliant on petroleum as its primary export. This has created a rich and robust economic environment that has increasingly made the region open to Western liberal policies. Even while Dubai benefits from the petroleum industry it is to a degree much smaller than surrounding regions. Indeed, it’s noted that revenues from natural gas and petroleum contribute less than 6% to Dubai’s overall economy (Krane 2011, p. 25). Rather revenue from tourism, real estate, and a variety of administrative financial entities constitutes the main crux of the country’s economic output. It’s noted that construction and real estate sales constitute 22.6% of the country’s economy. In terms of debt considerations, the country’s national debt is approximately $100 billion United States dollars (Krane 2011, p. 30). This constitutes a major deficit, but is frequent among many developed nations and to an extent represents the extensive nature of trade between nations. A highly notable economic concern for Harrod’s potential expansion into the region is the nature of the tax structure. Currently there are no direct taxes on corporate profits or personal income. This tax rate is largely permitted through the robust petroleum revenues that exist in the region. Petroleum profits are the only profits taxed by the government and these corporate entities must pay a 55% rate (Krane 2011, p. 37). The limited tax rate not only constitutes a significant advantage for Harrod’s in terms of limited corporate taxes, but also creates a consumer with expendable income that would frequent Harrod’s retail establishments. Further economic considerations note that custom duties are at a very minimal 4% rate and allow a high number of exceptions (Krane 2011, p. 37). Additionally, 100% repatriation of capital profits is permitted; again this is highly significant for Harrod’s as an international company in that corporate profits will be able to be maximized (Krane 2011, p. 37). There are no foreign exchange controls, trade barriers, or quotas. Finally, there are highly competitive import duties, with a 4% rate. Ultimately, these economic considerations point to a strong and robust economic environment. While the region is not as luxurious as some of the oil rich areas within the United Arab Emirates, there is nevertheless a strong and consistent economy that is highly receptive to international expansion and business operations. Ultimately, it’s clear that the economic environment is positive for the implementation of Harrods. Social Environment There are a number of social concerns that are highly relevant for Harrod’s potential expansion into the region. Perhaps the most overarching recognition is that Dubai is almost entirely composed of expatriates. A reported 80% of the population is expatriates (Krane 2011, p. 55). In terms of Harrod’s potential expansion this is relevant as it indicates that the population may already be accustomed to shopping and purchasing products from Harrod’s. It also creates a social climate that is attuned to the sorts of products and purchasing trends that Harrod’s offers. One considers that there is a number of additional social concerns that may give indirect insight into the relative success levels Harrod’s could achieve in its Dubai expansion operations. One such consideration is the highly minimal crime rate. It’s noted that the Dubai crime rate is almost at a zero percent rate (Krane 2011, p. 55). This crime free environment is not only significant for the modicum of impact it has on in-store security measures, but also more prominently impacts the living environment. In this sense it improves real estate values and draws immigrants with more expendable income. These factors play strongly into the robust consumer environment that Harrod’s needs. Still, there are also social factors that place Dubai partly at odds to its current Western environment. While Dubai has firmly embraced many Western economic principles, the country has retains many of the Middle-Eastern cultural standards. In these regards, there remains a firm patriarchal order, as men are allowed to have more than one wife. While women are not as oppressed as in other Middle Eastern states, the general custom is that they remain in long black robes that keep them covered from the male gaze. Additionally, males constitute more than 70% of the Dubai population; this could potentially pose challenges for the company, as consumer-purchasing patterns would greatly shift towards the male demographic (Krane 2011, p. 2). Still, these cultural trends should not be considered as entirely restrictive, as tourists and many expatriate residents continue to exhibit their own standards of dress and behavior. Technological Environment The technological environment in Dubai poses a number of potential impactful factors for Harrod’s potential expansion. As noted earlier, Dubai is structured into a series of zones. Notably, there are seven industrial areas within the country. Within this spectrum of investigation, there is one business-park, two world-class seaports, a major international airport and cargo village, and internationally renowned free economic zones. These areas present significant advantages for Harrod’s potential expansion, as they constitute an already developed and functional economic system. Harrod’s then can implement itself within this already established structure. In addition to these elements there are a number of further infrastructure concerns that relate further to Harrod’s potential expansion. Notably, the country contains a modern highway network, cutting edge telecommunications technology, and a modern utility system that rivals much of the Western world. Additionally, Dubai is recognized as being connected to over 120 shipping lines, and 85 airlines that connect the country to over 130 global locations (Krane 2011, p. 2). Ultimately, these technological elements speak to the country as on par with much of the Western world. This speaks strongly to the ease, efficiency, and success of Harrod’s international expansion efforts in this region. Environmental Environment There are indirect environmental considerations that may be relevant for Harrod’s potential expansion into Dubai. Perhaps the most prominent consideration is the climate. While the United Kingdom exhibits a highly varying climate, Dubai is noted for being hot and arid. Within the context of Harrod’s potential expansion into the region the dramatic change in temperature could be accompanied by significant changes in consumer purchasing trends. Along with the divergent demographic factors this would then constitute an area where the strategy would need to be altered. Legal Environment The Dubai legal system functions under the auspices of United Arab Emirates. This legal system is founded on civic law principles. These principles are collated from Egyptian and Isamic Shari’a Law. In terms of specific considerations for corporate expansion in the region, there is an increasingly expanding federal system with codes of laws. Just as with the economic environment the legal environment has demonstrated a consistent openness to corporate operations (Krane 2011, p. 7). Entry Strategy This report recognizes that entry strategy into a new market is contingent on a variety of elements. Within the Harrod’s entry into the Dubai market one considers there are a number of specific area concerns. This report advances from the recognition that an effective entry strategy must consider elements of marketing, sourcing, and investment and control. As such, Harrod’s entry strategy considers these elements as contingent on a variety of situational factors as well as in relation to a comprehensive entry approach. The recognition that a significant amount of Western business operations have already created a stronghold within the region provides Harrod’s a strong means of precedent. Further recognition is given to the robust retail environment. In these regards, the first stage in entering the Dubai market is the establishment of store establishments within the area’s free economic zones. The goal for the organization is to establish a presence in the most viable economic zones as a means of correspondingly establish Harrod’s presence in Dubai. Following prominent trends in marketing there is the recognition that establishing brand identity in the area is paramount to establishing a long-term presence. In establishing this brand presence the company will then be able to slowly garner large-scale consumer support and develop further expansion measures in the region. There is then a considerable emphasis placed on the need for establishing a strong presence in the opening stages of the operation. As a means of establishing this, prime real estate investments are recommended for their retail operations. After the strength of the Harrod’s brand identity is established in the region then further expansion measures can be implemented in less desirable regions. In terms of the construction of the buildings one of the most prominent methods has been through licensing projects. This is a potential option for Harrod’s as licensing out organizational operations would largely reduce operating expenses and place a considerable onus on the investor to oversee the development of the organizational process. The main challenge with this method is that it places a considerable reliance on the licensee to ensure the proper maintenance and operation of the store. As such, this report recommends that Harrod’s develop a stringent license requirement for potential licensees. The main thrust of the operations will then be contingent on corporate run stores. In establishing further recognitions in terms of entry strategy this report implements Porter’s five-force model (Porter 2008). Threat of new competition This report recognizes that there is always the threat of new competition. Within Dubai’s free economic zones retailers throughout the globe constitute the competitive forces. The pervading recognition in this mode of investigation, however, is that the competitive environment within this region is the same or less than the already existing competition within the United Kingdom. Threat of substitute products or services While operating within the same realm of investigation as considerations related to the threat of new competition, there is increased worry in that the international region will have markedly different purchasing patterns. In terms of Harrod’s expansion plans, however, such concerns are limited as the organization has the considerable financial resources to engage in aggressive product purchasing patterns. Bargaining power of customers The bargaining power of customers in the region is considered to be on-par with much Western areas. The free economic zones and stable economic system have created a consumer area where bargaining power is limited. For citizens, there is virtually no annual income tax, increasing the purchasing power of these individuals. Bargaining power of suppliers Dubai’s government regulations have created an environment that is highly favorable to large-scale retail operations. In these regards, there is a highly minimal tax on imports. This has lowered the bargaining power of the supplier as it has increased the import environment. Intensity of competitive rivalry The limited corporate tax rate, robust retail environment, and motivated consumers create a strong intensity of competitive rivalry. Company and Management Orientation The company and management orientation is one of the most comprehensive strategic considerations that will be implemented within the new market. There are a variety of management orientations that can be implemented as a means of organizational strategy. Among the most prominent of these approaches are polycentrism, ethnocentrism, and geocentrism. Polycentric management approaches implement a variety of diverse strategic approaches as a means of organizational management. Ethnocentric managerial approaches largely implement an approach that narrow-mindedly considers the specific surrounding culture. Finally, geocentric approach are closely linked to specific area concerns. This report recommends that Harrod’s implement a polycentric managerial approach. There are a variety of elements that have factored into this decision. While Dubai is a greatly different region than the United Kingdom, international expansion into this area is unique in that it the population is largely constituted by ex-patriots. The strong foreign presence in the area then creates a situation where simply adopting a single management orientation is short sighted. Instead, the company must adopt a polycentric approach that appeals both to established cultural standards, the ex-patriot population, and the diverse tourists and visitors in the region. The polycentric company and management orientation isn’t simply linked to an overarching strategic label, but is more notably considered in terms of specific company measures. One of the prominent approaches to organizational analysis considers the nature of the organization as linked to broader ranging cultural concerns. Deegan & Unerman (2011, p. 320) note that the “view of the organization and society…permits us to focus on the role of information and disclosure in the relationship(s) between organisations, the States, individuals and groups.” This perspective comes to be considered as the notion of organizational culture. Zucker (1987, p. 64) furthers this perspective by considering the operation of companies within a specific environment. For Harrod’s then the implications for this is that it is impossible to simply institute an external strategic orientation without specifically consider environmental area concerns. A number of theorists have noted the challenges that have arisen from a company policy that too firmly attempts to implement a domestic strategy in an international context (Roberts 1992; Cheung 1987). Among the issues that have arisen are misunderstandings in employee motivation practices, disagreements over compensation considerations, and an overarching recognition that homeland policies are inefficient in the international context. Ultimately, then it is necessary for Harrod’s to implement a hybrid company orientation that qualitatively works to link United Kingdom cultural standards with those of the Dubai destinations. Fig. 1 demonstrates the organizational chart. This chart demonstrates the differences between Harrod’s United Kingdom stores and the Dubai operations. UNITED KINGDOM OPERATIONS DUBAI OPERATIONS Geo-centric orientation. Polymorphic orientation. Traditional United Kingdom management orientation. Success in this region necessitates a hybrid approach that incorporates both traditional management approaches and considerations contingent on local modes of operations. Traditional domestic product considerations Product design tailored to Franchisee and corporate owned stores Licensee approved stores in only rare circumstances; corporate owned stores dominant Human resource hiring contingent on available resource pool for surrounding areas Item response theory implemented in human resource planning; charismatic leadership model Fig. 2 Harrod’s Department Store Organizational Chart Staffing Policy After the entry strategy one of the most notable considerations within Harrod’s international expansion operation is the staffing policy. Roberts notes that recruitment functions (1992, p. 190) "is to attract people with the required knowledge, skills and abilities (KSAs) or competencies to apply for available positions in an organization". Human resource planning and recruitment has long been considered as an expense rather than an organizational value-add. Berry (2011, p. 66) argues that, “by linking HRD solutions to specific business results, such as revenue- related metrics, senior management will begin to see us as a source of competitive advantage.” This report then recommends that Harrod’s consider human resource planning within its Dubai operations from a multidimensional perspective. The differing approach between human resource planning between the United Kingdom operations and the Dubai operations is linked to the recognition that the changing cultural environment will pose a challenge in terms of staff. Hofstede (2001, p. 45) argued that personality constituted the most overarching consideration when examining the particularities of human functioning in the organizational context. Fig. 2 below demonstrates that model. Fig. 2 Hofstede Personality Model Following the Hofstede personality model, this report argues that the best means of ensuring that Harrod’s most functionally transitions to the Dubai cultural context is through emphasizing hiring practices that link the employee’s personality to the company’s organizational model. In terms of employee hiring practices, item response theory, specifically the Rasch model, can be implemented as a means of testing potential candidates. Linacre (1999, p. 382) notes that “the probability of a specified response (e.g. right/wrong answer) is modeled as a function of person and item parameters. Specifically, in the simple Rasch model, the probability of a correct response is modeled as a logistic function of the difference between the person and item parameter.” In this mode of recognition the organization can establish item response models that identify the types of employees that will most functionally operate within their organizational model. The item response portion of the test operates as a means of proofing the test against individuals that would attempt to answer misleadingly to the personality questions. Strategy Considerations There are a number of further strategic considerations that will differentiate Harrod’s operations in the United Kingdom from those in the new Dubai stores. Perhaps, the most overarching consideration in these regards is demographic factors. It’s noted that males constitute more than 70% of the Dubai population. This is a significant demographic shift from the United Kingdom that experiences close to an evenly distributed demographic breakdown. This will undoubtedly have a significant impact on purchasing patterns within the Dubai stores. Additionally, there are significant climate differences between the regions. As such, it is recommended that the organization shift its product design and supply to match demographic factors and climate considerations. Conclusion In conclusion, this report has considered Harrod’s international expansion into the Dubai market. Within this area of recognition, the report has demonstrated that Dubai constitutes a highly viable area for retail expansion. Among the most notable considerations are the areas of low import rates, robust retail environment, and limited taxes on corporate profits. In terms of entry strategy, a comprehensive approach to human resource planning and corporate management has been advanced. The overarching factor is a strategy that considers the need for attending to Dubai cultural patterns. Ultimately, this implementation of these strategic measures will serve to create a success international expansion. References Berry, J. (2011). Transforming HRD Into an Economic Value Add. T+D, 65, 9, 66-69. Cheung, S. (1987). Economic organization and transaction costs. New York: Desnee Press. Deegan, C. & Unerman (2011). Financial Accounting Theory, 2nd edition. McGraw Hill. Hofstede, G. (2001). Culture's Consequences: comparing values, behaviors, institutions, and organizations across nations (2nd ed.). Thousand Oaks, CA. Krane, J. (2011). City of Gold: Dubai and the Dream of Capitalism. London. St. Martin’s Press. ‘History of Harrods’ (2012). [Online] Available from http://www.harrods.com/content/misc/boutiques/best-of-british/history-of-harrods [Accessed Jul 1, 2012]. Linacre, J. M. (1999). Understanding Rasch measurement: Estimation methods for Rasch measures. Journal of Outcome Measurement, 3(4), 382-405. Porter, M. (2008). The Five Competitive Forces That Shape Strategy, Harvard business Review, January 2008. Roberts, J. (1992). Economics, Organization and Management. Englewood Cliffs, NJ: Prentice-Hall. Zucker, L. (1987). Institutional theories of organization. Ann. Rev. Sociol. 1987. 13:443- 64. Read More