The Different Aspects of an Industry - Essay Example

Business Analysis Contents Contents 2 Introduction 3 Industry Sector 4 Issues of the moment and their future implications 6 Evaluation of competitivenature of the industry 8 Porter’s 5 Forces Analysis 8 Identification of 3 – 4 competitors within the industry and their competitive strategies 9 Conclusion 13 14 Appendices 15 Appendix 1: Evolution of Retail Industry 15 Appendix 2: Retail Mcommerce sales (2012-2018) 16 Appendix 3: Porter’s five forces model 17 References 18 Introduction The study is about analyzing the trends in a particular industry. It is often observed that an industry is greatly affected by various external influences. These factors prove to be beneficial for certain firms in an industry or in some cases even enforce a company to change its business strategies. This study would be dealing with different aspects of an industry. It would comprise of competitive strategies undertaken by different players in the industry and to the degree these innovative strategies has benefited the companies. The industry which has been selected for this particular study is retail industry. Retail is all about selling goods from businesses or individuals to the end user. In this industry retailers are often considered to be a part of the integrated supply chain. Large quantities or products are purchased by retailers from respective manufacturers. These purchasing process are either done through a wholesaler or directly from the producer and are then passed on to the end users in considerable small quantities. There are various mechanisms through which retailing can be done either in the form of fixed stores or markets or by delivery or door to door selling. The retail industry in the present scenario is considered to be the most competitive industry. As the consumer market demand is increasing there are many new players emerging in this segment which is making the competition fierce. It can be stated that customers are at a profitable end in terms of the scenario of retail industry with multiple players operating to deliver best services and goods at competitive prices. In context of global retail industry there are firms performing their operations through online websites, home delivery and even increasing convenience of users by electronic payment. Retailing is usually associated with providing services to a wide base of customers and encompassing wide range of products. This may include clothing to grocery or even any other household items. However the type of products which are included in a retail store are food products such as those which require facilities of a cold storage, durable goods or hard goods such as appliances, automobiles, sporting goods, electronics, furniture, etc., consumables or soft goods such as clothing, footwear, medicines, other fabrics, cosmetics and stationary, and the last type of product is arts. The importance of selecting a particular industry in this study is that it would help to identify the probable challenges which are affecting the industry. On the other hand it would even provide a platform through which thorough analysis can be conducted on the future impact caused by competitive environment and external forces. The entire study would encompass two important strategic analysis tools known as PESTEL and Porter five forces analysis. These tools would help in judging the external environmental conditions of the industry along with the impact caused by industrial forces on the retail industry as a whole. High competitiveness, regulatory barriers and complicated taxation structures are some of the barriers for the global retail industry which is transforming its day to day operations. Industry Sector In the early 1900s or late 1800s it was single product or specialty stores which governed across the globe. However the scenario was slightly transformed with the evolution of departmental stores. It was for the first time that customers had an access to wide range of brands, products or services all under the same roof. Even in rural locations there were companies such as Montgomery Ward and Roebuck & Company which brought forth different products to all those customers who were deprived off accessing these items in the previous years. Convenience was the major factor which helped departmental stores or other retailers to gain significance in the market place (Cox, 2006). Apart from this factor these stores provided an appealing environment which made shopping to be a wonderful experience for all customers. These developments in the retail sector even enabled grocers to adopt different strategies in terms of transferring their small stores to hyper markets or super markets. Within a period of few decades the entire scenario changed as there was no more retail outlets which were category specific and evolution took place of integrated outlets known as ‘one-stop’ outlets. After World War II the trend of industrial sector had changed as more importance was given to efficiency and practicality. A new retail sector emerged as mass distribution gained importance with transferring many retails into warehousing (Martinel and Sparks, 2003). There were new methods adopted in order to reduce the store pricing by operating in large volumes. Many retailers adopted the strategy of cost plus pricing in order to save costs and these savings are generally transferred to end users in the form of low prices. Later in the 20th century developments that took place in technology and direct marketing were integrated to benefit retailers by incorporating various approaches to reach out to end users. In 1990s evolution of e-commerce changed the structure of the retail industry (Ulwick, 2005). Online environment facilitated many users to shop at their convenience making the profitability margins of this industry to increase. Retailers started considering social networking as a platform to communicate with customers as well as to conduct their virtual marketing. The entire background of retail industry is further illustrated in diagrammatic format in Appendix 1. Though the economic conditions were not suitable but retail industry continued to grow in desirable rate. In the year 2011 retail revenue increased by 5.1% to about US $ 4.271 trillion in relation to Top 250 retailers operating across the globe. There were further developments on the growth rate of 5.3% which resulted in the previous year. The composite margin of the net profit for this industry in the year 2011 was 3.8% which showed a slight increase in comparison to early years. In the past five years the overall development of retail industry has been by 5% each year (Findlay and Sparks, 2002). The developments have not only been in terms of technology but also in relation to offering best and quality services and products by retailers. However the major development in context of retail industry has been advent of Internet. The political, economic, social and technological factors are external influences which positively or negatively affect an industry or firm. These factors are ever changing and affect each industry in a different manner. Political conditions are a major element which enhances or disrupts operations of an industry. There are certain political elements which are directly associated with the global retail industry. Political instability in a particular region poses a lot of challenges for retailers to smoothly execute their business operations. The political power is also directly linked with forming norms and regulations (Hill and Jones, 2012). Taxation policies that are framed by government are a matter of concern as high tax rate would considerably decrease the overall profit margins of a firm. Monetary policies that are formulated by government play a major role in driving the growth rate of an industry. On the other hand safety regulations which are implemented by government make firms operating in the retail industry to incorporate best practices which could benefit customers as well as other stakeholders. In economic context there are various factors such as inflation rate, exchange rates, consumer price index which greatly affects the performance of retail industry (Steers, 2006). It can be stated that if the inflation rate is high them end users are not benefitted and neither can retailers achieve competitive advantage. In retail industry intense competition is based on offering low prices which becomes impossible when there is an economic turmoil in the industry. On the other end retailers located in specific region are affected by income growth of population in that region. The social factors have major impacts on the global retail segment. The changing lifestyles of the global consumer groups are increasing the demand levels of the customers from the retail market. Also, the high level of customer expectations made it necessary for the retail industry to operate in an efficient and sustainable manner. Social factors like living conditions, lifestyle, demographics, social mobility, fashion, education, leisure attitudes and income distribution have extensive impact on the retail industry. The disposable income and the purchasing power of the consumers across developed as well as emerging markets are increasing at an accelerated rate. This has made the retail segment a more profitable and revenue generating sector. The modern day consumers follow a busy and hectic lifestyle and thus, want to spend in areas where the products and services are easily accessible. The retail stores operate in a format where the customers can find all their requirements under one roof. This makes retail stores a necessary form of shopping destination for consumers across the globe (Morden, 2004). The technological innovations are used in all aspects of the retail companies starting from the procurement of raw materials to the delivery of the products and services to the end consumers. New inventions in technology are necessarily used by all retail companies. The established retail companies like Wal-Mart, Tesco, ASDA and Morrison use high end technologies in their stores, distribution processes, supply chain as well as marketing and customer relationship management processes. Technology driven features like Radio Frequency Identification (RFID), Vendor Managed Inventory (VMI), hub and spoke design of distribution, real time tracking of orders, centralized order distribution system, CRM software etc. are commonly used by the retail companies in order to ensure competitiveness in the continuously evolving market. Issues of the moment and their future implications The retail industry is highly affected by the macro-economic factors. The industry is affected by the global shifts in various political, social, economic and technological aspects. Therefore any changes in the external industry have direct influences on the functioning and the landscape of the retail industry. The current issues and the future outlook of the retail industry are discussed as follows. Supply and demand: The supply and demand levels in the global retail industry are continuously changing. The current economic climate in developed countries has fostered the development of a number of retailers. The established retailers are already competing with each other while new retailers are also entering into the industry. The new entrants in the retail industry are motivated by the reducing entry barriers and high level of profitability experienced in the retail segment. So, the customers are presented with a number of options. Also, the switching cost of buyers has always been low in this industry which reduces the brand loyalty in this market. In the scenario of heightened consumer expectations, the possibility of the consumers to switch brands will become further increased. Therefore, consistently delivering high quality goods and services to improve the purchase experiences of the customers would be a key concern for the retailers. Also, the supplies of products and services by the retailers have to be made more efficient in order to ensure competitiveness and sustainability. Failure to respond adequately to the changing demand and supply requirements may lead to loss of competiveness for the retail companies. The retail companies therefore, need to invest in proper technological and human resources in order to estimate and forecast the supply and demand changes in the industry. Electronic commerce: Electronic commerce has emerged as a mandatory and profitable business segment. The companies across all industries are focusing on electronic commerce and mobile commerce business activities. However, the retail companies are comparatively new entrants in the electronic commerce domain. Most of the giant retail companies like Wal-Mart, ASDA, Tesco, Carrefour and J. Sainsbury’s have opened up fully functional electronic commerce business wings. Electronic commerce is the latest trend in the global retail industry (Deloitte Touché Consulting, 2014). The developments and innovations in technology have made it possible for retail companies to embark on full-fledged electronic commerce businesses. The consumer buying processes are also evolving with their preferences shifting towards online shopping to save time and have easy access. The busy schedules of the people have made online sale of retail products immensely popular, especially in the developed countries like the United States of America, United Kingdom, and France etc. where the use of internet is widespread. Also, the rising use of smartphones as an all-in-one device and the increasing popularity of the trend of making purchases through mobiles and tablet computers have presented a new world of opportunity for the retailers of all levels (Appendix 2). The retailers with expansive scales of operations can become more profitable and popular through the online marketing avenue because of the availability of high technological and other resources. Supply Chain and logistics: Supply chain and logistics has emerged as one of the most significant components of operations in a business. The supply chain and logistics process of a retail company is perhaps the most critical and sensitive area of the business. The retail companies have to adapt to the changing requirements of the supply chain management practices in order to ensure sustainability as well as competiveness. One major issue in supply chain is the harmful side effects of the supply chain functioning of the retail companies on the environment. This has made it important for the retail industry to establish lean and green supply chains in their operations (Kent and Mentzer, 2003). The adoption of a lean and green supply chain improves customer satisfaction, addresses customer concerns regarding environmental issues, leads to increased efficiency, sustainability, long term profitability and as a result leads to a better position for the retail firm in the market. Pilferage, fraud and shrinkage are identified as the most troubling issues in the supply chain management practices of the retail industry. The adoption of a lean and efficient supply chain is expected to address these concerns as well. Multichannel operations: The use of multi-channel operations in retail has gained a dominant position in the recent years and is expected to continue playing a significant role in the retail segment in the future. The customers are focusing on enhanced purchase experience. Flexibility is identified as the key to success for the retail firms. The customers would expect high end services from the retailers and as such the integration of technology in the brick and mortar stores as well as the digital stores should be done to ensure more speed and efficiency in service delivery. The customers should be provided with exceptionally good shopping experiences for which ample use of technological innovations is mandatory. Already some companies like Wal-Mart and Tesco are investing heavily in technological integrations (Skolkink, 2011). Mergers and Acquisitions: Consolidations have become very common in the retail industry in the past 10-15 years. The increasing level of competition has made it necessary for retail companies to enter into mergers, acquisitions, joint ventures and partnerships. This is done in order to ensure that the retail industry does not become so concentrated that the market share of each of the company is reduced to a very low level. Also, consolidations help to increase the capacity and efficiency of the retail companies because the strengths of both the companies involved in the merger or acquisition can be utilized for maximum benefits. Consolidation is especially common among the medium to small retail companies because the small retailers often fail to compete with the big players in the industry (Centre of Retail Research, 2014). These consolidations will lead to major restructuring and changes in the landscape of the global retail industry. Therefore, consolidations including mergers and acquisitions are likely to be the future of the retail segment. Evaluation of competitive nature of the industry Porter’s 5 Forces Analysis Competitive nature of the retail industry will be discussed on the basis of Michael Porter’s 5 Forces Analysis. The competitive nature of the industry will be discussed on the basis of important five dimensions and those dimensions are threat of the new entrants, threats from the substitute products, bargaining power of the suppliers, bargaining power of the buyers and rivalry among the existing players of the industry. Over the years the industry has undergone a new trend of lowering number of the independent retailers. This industry requires substantial amount of investment from the side of the retailers. Entry barrier is huge due to the significant requirements of investment and logistic capacities. In retail industry managing the large business is an utterly complex matter and requires significant experience and technological advancements. All these requirements have made this industry very tough to enter (Porter, 2014). Apart from the technical advancements and logistics capacity the industry requires supreme backup from suppliers. It is very difficult for any new entrant to enter into this industry and to manage the suppliers. Bargaining power of the suppliers in the retail industry is very low. In this industry big giants like Wal-Mart and Tesco can make or break the future of the suppliers. There is significant competition among the suppliers of the industry which reduces the chances of the suppliers to raise their prices. Due to the standardize nature of the retail industry suppliers cannot adjust with the specifications of different products. It makes supplier switching cost very low for the retail companies. Bargaining power of the buyer in this industry is low. There are lots of buyers in the industry and no customer can get leverage to bargain hard. Individual bargaining power of the buyers is very low but there is certain scope of bargaining with the help of massive big group. But it is very difficult to organize a big group and bargain hard (Porter, 1998). Each and every retailer offers distinctive values to customers. If any customer decides not to shop from a particular retailer then it will be an opportunity miss for him. Any way the retailer will get other buyers. Threat from the substitute products is low. This is the only industry which offers low prices and takes care about the convenience of the customers. The main goal of this industry is to provide wide range of products to the customers. The industry offers many products under one roof. Buyers do not get this kind of facilities in any other places like retail stores can offer. Retail industry has medium to high level of competitive rivalry. There are lots of players in this industry and recently different online retailers also competing within the industry. All the big retail players have almost same capacities which make the internal rivalry more cut throat. With their huge capacities and resources different players try to be the undisputed leader in the industry. They try to eat into the market shares of the other competitors. In order to do that, they come up with different new competitive strategies. Identification of 3 – 4 competitors within the industry and their competitive strategies Here in this section of the study 3 competitors in the global retail industry will be identified and their competitive strategies will be discussed. Offering the lowest possible prices to the customers is the basic competitive strategy of the Wal-Mart. The organization believes in cost leadership. According to the annual report of the 2010 the company reported 3.6 % increase in their net income. The organization achieved this profitability with the help substantial austerity measures. According to the report of MSNBC, during the time of recession the organization was able to get significant profitability because premium customers were forced to purchase low price products. Apart from the cost leadership Wal-Mart also follows differentiation strategy (Bhatia, 2008). The company believes in unique product and service providing to the customers. The organization is significantly focusing towards energy conservation and concentrating on environmental sustainability. In this attempt the company is investing substantial money towards different activities like solar power plants and environment friendly products. French retail giant Carrefour over the years has come up with different competitive strategies. With its different competitive strategies in the last forty years the organization has become Europe’s number one and world’s second largest retail company. The organization has divided its retail structure into four different categories. Those are hypermarkets, convenience stores, supermarkets and hard discount (Finne and Sivonen, 2008). This competitive strategy has helped the organization to get high competitive advantages in the industry. In 2012 revenue of the organization was € 76.127 billion. With its huge scale of business operation the organization always believes in the significant contribution towards the local economic developments. The group is the world largest private employer having 475,000 employees across the 15,500 stores. In their different competitive strategies, France remains the basic market for the company and the organization trying to reclaim its leadership position in the French market. Tesco is the biggest retailer of UK. It is the third largest player in the global retail industry and operating across the 12 countries. Giving importance to the customer behaviour is the basic competitive strategy of the company (Lamba, 2002). It is the first British company which significantly focused towards the buying behaviour of the customers and designed their services and products according to that. Before this concept most of the players in the industry were product or services oriented. But Tesco shifted the trend and the industry is becoming more customers oriented. Tesco Club card is a game changing competitive strategy for British retail giant. This customer loyalty scheme has given significant competitive advantage to the company. According to annual report of Tesco, revenue of the company was £70.894 billion in 2013. The organization always believes in the superior presence in the market. In between 1955 and 1960, it owned almost 500 stores. It shows the aggressive nature of the company in terms opening the stores. The organization believes in consistent process improvements which help in terms of energy efficiency and optimum utilization of resources. There is a significant positive and negative impact of remote environment and competitive arena on the players of global retail industry. It is very important fact for the managers of organization to understand and know the external environment before starting any retail business. Surrounding atmosphere and condition should be in favour for starting a retail business in a particular country. Generally external environmental factors are not under the control of the management of an organization. Available recourses in economy, government regulation, technological environment, demographics of local people, cultural environment, government rules, regulations and policies, political condition, social environment etc are some important areas of external environment in any business Industry. External environment can be divided into two parts which are indirectly interactive and directly interactive. Indirectly interactive type of environment has more distant and secondary impact on an organization whereas a directly interactive type of environment has a firsthand and immediate impact on that organization. Direct interactive environmental forces are suppliers, customers, owners, employees, competitors and employee unions. On the other hand indirect interactive environmental forces are political, legal, socio-cultural, global, economic and technological influences. External factors can affect the retail business in many ways. From the socio cultural point of view this can be said that if preferences of customers become changed than the earlier situation then retail business may be affected in a negative way. But at the same time if the business owner take corrective steps and offers product according to the customer’s current preference then the business can face success. In the recent days most of the consumers prefer to consume healthy and nutritional food items than the delicious food items (Finlay, 2000). To keep the fact in mind every retailer should launch such kind of food products and beverage items which can fulfil the criteria and expectation of customers. If interest rate, taxation rate, government spending, general demand are changed then that impact on this retail industry. Technology is improving at rapid speed in the present world. So retail industry should adopt those improved technology for providing more improved and fast services to the customers. Such improved technology reduces the time which has to be spent by every customer in the billing counter. Again online shopping facility has brought a significant change in this retail segment. Almost 40% customers in the retail industry shop online by using their debit and credit card facilities. Retail organizations also spend a huge amount of money for online marketing and promotional purposes (Bartlett and Ghoshal, 2000). Major players in the retail industry in the world market are Wal Mart, Tesco, Carrefour S.A., Amazon.com etc. All the above mentioned companies are the international market leaders in retail industry and operate their business activities across the world. In case of Wal Mart, this can be said that the company has to follow certain rules and regulations of the host country to operate its business activities. This company faced so many challenges for expanding its business in China due to some stringent rules and regulations applied by Chinese government. As a result they have to acquire local organization for expanding their business activities in Chinese market. On the other side this company got positive support from Indian government for expanding their business activities. Wal Mart acquired Bharati Airtel which is a leading telecommunication company and wind up their business activities in South Korea and Germany. Wal Mart can change their business activities according to the preference of local people in host countries (Besanko, Dranove and Shanley, 2000). The company is involved more research and technological improvement for providing better benefits to the customers. In case of economic factor this can be observed that Wal Mart is facing currency devaluation, higher level of unemployment, unavailability of consumer credit, higher fuel and energy cost and high interest rate in US. In case of Tesco, it is observed that the company is an UK based organization which has expanded its business operation in more than 13 countries in the world. Unemployment is a common problem in every country and United Kingdom is not an exception in this case. Tesco gives the employment opportunity to the local people for reducing the unemployment rate to some extent. This company got several opportunities for expanding their business in Singapore. Singapore is one of the least corrupted countries in the world and for that reason political parties of this country are in favour of increasing business as well as employment opportunities. Government laws and regulations are against the slavery and forced labour. These factors help the organization for getting success in this market. In case of social and cultural factors it can be observed that Tesco has launched organic food products for those customers who are health conscious by nature. Credit crunch situation in UK impacts on a negative way on the operational activities of Tesco (Johnson, Scholes and Whittington, 2010). Again in Singapore, there is very high per capita income and for that reason people can easily afford to do their shopping at super markets. So there is a high scope to increase the volume of business. Again retail market is growing in Singapore day by day. So the business can get wide opportunity for increasing the business activities. In UK, Tesco already captured one third market and there is no high scope to gain more market share. So if the business will concentrate to the high growth scope based markets in the world like Singapore then Tesco can achieve more market share in the international market. Tesco has launched more energy capable stores and implement self check point which become easy for the customers to do shopping in more convenient way. In case of Carrefour S.A., this can be said that this company is facing political unstable situation in the Middle East countries due to high oil prices. Again the company is facing high raw material cost and distribution cost which help to decrease their profit margin (Porter, 1980). Current devaluation of Euro becomes a threat for this organization. Carrefour has reduced the consumption of disposable plastic bags by 53% and through this way the company can save natural environment. Conclusion Over the years the retail industry has evolved a lot. The industry has changed a lot with the changing patterns of the global retail businesses. According to the commerce department of USA, the retail industry is showing significant strength due to 1.1% sale increase. The global economy is on the mode of recovery. With the mood of economic recovery, customers across the world are slowly but surely getting their confidence back and using their disposable income better. It is a highly encouraging factor for the retail industry. Presently countries like India, China, Brazil and South Africa are also shifting their focuses towards the retail industry. Those emerging economies are offering different benefits to global retail players, to start their operations into those countries. It has opened significant opportunities for the retail industry to increase its business operations. Now days the world has become small and boundary less. Governments of the different countries are signing different MOUs among them. It is helping the global organizations to conduct their retail businesses in the foreign soils. Buying behaviours of the customers also have changed considerably. Due to busy life schedule, customers are searching for one shop solutions. Retail industry is offering one shop solution to customers. Due to all these reasons customers are feeling highly attracted towards the different retail players like Wal-Mart, Tesco and Carrefour. Retail business industry has very bright future in the world market scenario. Most of the people in developed and developing countries are preferred to do shopping from the super markets because of their busy life schedule. In super market customers are getting all the necessary consumable things under one roof and credit card and debit card facilities help them for not carrying hard cash. Again online shopping is getting popularity in day by day. Physical retail business is now going to convert into digital retail business. Digital media, e-commerce, mobile computing etc are helping to easy the online shopping procedure. That will help to bring success in retail sector. The reputed retail organizations like Wal Mart, Tesco, Carrefour S.A. etc are going to expand their retail business operation in developed countries as there is high scope for expanding this kind of business. In the present days retail industry has adopted multi channel business procedure. It is required as the business cost is continuously rising and competition is becoming tougher. Technology also helps to increase the scope of retail business success. Again logistics and transportation sector is also improving on the basis of retail business progress. Appendices Appendix 1: Evolution of Retail Industry Appendix 2: Retail Mcommerce sales (2012-2018) Appendix 3: Porter’s five forces model References Bartlett, C., and Ghoshal, S. 2000. Transnational Management. 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