Global Retail Market Development - Report Example

Global Retail Market Development Introduction Retailing engages establishing a wide range of products from an array of sources and providing them to consumers (Blouet, 2001). The main sources of a retailer’s competitive advantage are their expertise and competence. The major activity of the internationalization of the retail industry is in the operation of their shops and in the other types of retailing, in more than one country. Internal Management Analysis According to Hill (2002) every fiscal year retailers are able to experience a significant progress in several key metrics. Retailer’s inventory was reduced from $55 million to $23 million and inventory turns rose from 12 to 26. The cost of revenues, excluding the benefit from previous special charges and the applicable portion of the amortization of intangible assets, decreased from 72.3% of revenues to 67.8% of revenues (Carraro, 2003). The combination of sales and marketing, research and development, and general and administrative expenses was reduced from $ 435 million to $339 million, while at the same time improving on the pace of innovation (Hamel and Pralahad, 1996). The total revenue has approximately grown from $1 million in fiscal year 1995 to $ 871. 9 million in a fiscal year. At the same time, retailers in the United States like Wall-mart represents the largest sales and marketing channel which encompass national and regional office supply stores and mass merchants (Palmer, 1997). Distributors represent the second largest United States channel and generally sell to both traditional and Internet resellers and retailers. In Europe and Asia, Tesco’s market share is still relatively high. It has more than 100 international distributors located worldwide. All these major retailers utilize the store as a venue to sell its products. This is accomplished through the use of e-marketing campaigns and product bundles (Shaoming and Tamer, 2002). The company is able to build awareness of its products and brands through mass media advertising, public relations efforts and branded Internet properties. The company also makes it a point to receive feedback from its customers through market research (Hessan and Whitely, 1996). The company then uses these feedbacks to refine its product development efforts and marketing strategies. International retailers out-source all of its manufacturing and hardware designs of its products to third party manufacturers (Child and Faulkner, 1998). This outsourcing extends from prototyping to volume manufacturing and includes activities such as material procurement, quality control and delivery to distribution centers. The company is assured that there is an adequate supply of components to manufacture its products. The majority of the company’s products are assembled in China and Mexico (Daniels, Radenbaugh and Sullivan, 2004). Distribution centers are operated on an outsourced basis in Tennessee, Ireland, and Hong Kong. The External Environment Beginning in 1995, retailers started including smart-phones and handheld computers in their stores. These were equipped with a Personal Information Management (PIM) software and other note-taking applications (Arora et al. 2001). A range of additional features including high resolution coloured screens and wireless capabilities ensured that theres a product designed to meet the needs of clients anywhere in the world (Guner, 2005). Hand-held computers are different from a laptop. The leading retailers’ products focus more on the management and access of information rather the creation and editing of documents (Hitt and Hoskisson, 2003). For this reason, they have developed a unique set of guiding principles - simplicity, wearability and mobility. Total commitment to these principles makes these products very user-friendly to its customers (Doz et al. 2001). Competitors The retail companies implement Porter’s Generic Strategies which targets a broad market and aims to present customers with products at a low cost for a given level of quality (Johnson and Turner, 2003). The industry sells its products at average industry prices to earn a profit higher than that of rivals, or below the average industry prices to gain market share. In the event of a price war, the firm can maintain some profitability while the competition suffers losses (Porter and Fuller, 1986). Even without a price war, as the industry matures and prices decline, the firms that can produce more cheaply will remain profitable for a longer period of time. Although, Porter provided a comprehensive strategic management model to serve as a guide in achieving the company’s goal in being the largest retailer globally, Porter’s model can still be considered limited at some extent (Richardson, 2005): (a)Consumers, competitors and suppliers are not similar therefore they should not interact and may contradict each other. (b) Barriers might be created because the source of value is structural advantage. (c) Letting participants inside the market plan for the behaviors of their consumers might result to low performance and uncertainties in the market. Modes of Entry With rare exceptions, products just don’t emerge in foreign markets overnight a firm has to build up a market over time (Hill and Jones, 1998). Several strategies, which differ in aggressiveness, risk, and the amount of control that the firm is able to maintain, are available: According to Bartlett and Sumatra in 1989, exporting is a relatively low risk strategy in which few investments are made in the new country. A drawback is that, because the firm makes few if any marketing investments in the new country, market share may be below potential. Further, the firm, by not operating in the country, learns less about the market (What do consumers really want? Which kinds of advertising campaigns are most successful? What are the most effective methods of distribution?) If an importer is willing to do a good job of marketing, this arrangement may represent a "win-win" situation, but it may be more difficult for the firm to enter on its own later if it decides that larger profits can be made within the country. While Beynon and David (2000) believes that licensing and franchising are also low exposure methods of entry, this allow someone else to use your trademarks and accumulated expertise. The partner puts up the money and assumes the risk. Problems here involve the fact that you are training a potential competitor and that you have little control over how the business is operated (Hackett and Hackett, 1963). For example, Wal-mart has found that foreign franchisers often fail to maintain American standards of cleanliness. Similarly, a foreign manufacturer may use lower quality ingredients in manufacturing a brand based on premium contents in the home country. Another market entry strategy is contract manufacturing involves having someone else manufacture products while you take on some of the marketing efforts yourself. This saves investment, but again you may be training a competitor (Jain, 1989). The last strategy is direct entry strategies, according to the study of Palmer in 1995, the firm either acquires a firm or builds operations "from scratch" involve the highest exposure, but also the greatest opportunities for profits. The firm gains more knowledge about the local market and maintains greater control, but now has a huge investment (Hall, 1996). In some countries, the government may expropriate assets without compensation, so direct investment entails an additional risk. A variation involves a joint venture, where a local firm puts up some of the money and knowledge about the local market. Analysis The discussion of the factors influencing the internationalization activities of retailers and its components and strategies provided an additional insight as to its popularity (Miller and Dess, 1996). There seems to be a collaborative relationship for every business objective which demonstrates that collaboration can facilitate organisational growth and assist in achieving competitive advantage for the companies in this very crowded marketplace. It may even be considered the best way to achieve these goals because in the reality of globalisation, only companies with vast resources can be able to handle business operations of a vast magnitude which spans other counties. The problem of inadequacy of resources whether they are technological, skill or financial, continues to become a common problem not only experienced by small companies. Thus, with the prevalence of forming cooperative strategies with other companies, an organisation is given the chance to address the problem with the minimum risk possible due to careful collaboration planning by the organisation and its partners. As the battle cry of globalisation is to break down borders, collaboration certainly makes it easy for companies to be able to forge ahead with their plans of penetrating new markets and implementing their strategic plans. It definitely is a timely response to the changes which are continually happening in the face of globalisation. Even with the risks involved, not taking advantage of forming collaborations with other companies with which an organisation can acquire resources would be preventive of the potential to achieve organisational growth and competitive advantage needed. As globalization has progressed, living conditions (particularly when measured by broader indicators of well being) have improved significantly in virtually all countries. However, the strongest gains have been made by the advanced countries and only some of the developing countries. That the income gap between high-income and low-income countries has grown wider is a matter for concern. The international community should endeavor by strengthening the international financial system, through trade, and through aid to help the poorest countries integrate into the world economy, grow more rapidly, and reduce poverty. That is the way to ensure all people in all countries have access to the benefits of globalization. References Bartlett, C. and Sumantra, G. (1989), Managing Across Borders: The Transnational Solution, Boston: Harvard University Press. Beynon, J., and David, D. (2000) Globalization. The Reader. New York: Routledge. Blouet, B. W. (2001) Geopolitics and Globalization in the Twentieth Century. London: Reaktion. Child, J & Faulkner, D (1998), Strategies of cooperation: managing alliances, networks, and joint ventures, Oxford University Press, Oxford. Daniels, J, Radebaugh, L & Sullivan, D (2004), International business: environments and operations, 10th edn, Prentice Hall, London. 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