Seven-Eleven Company - Research Paper Example

The Case Study on 7-Eleven Table of Contents Introduction 2 Seven – Eleven Japan 4 Market Exposure 5 SWOT Analysis 7 Strengths 7 Weaknesses 8 Opportunities 8 Threats 9 Seven – Eleven in Hong Kong 11 Reasons for Licensing Agreement 12 Macro Factors 12 Micro Factors 14 Benefits of Licensing 15 Conclusion 16 References 18 Bibliography 20 Introduction The experts of the industry have rightly observed long back that the only constant thing in the modern world is the word ‘change’. With the advent of changes in the fields of information technology and communication process, the international industry experienced major shifts in the terms of trade. Factors like globalization and liberalization further broadened the market and it was soon observed that the international geographical borders almost perished in terms of trade and finance. The companies of one country ventured in to the other nations. Often, the foreign companies were found to employ local people in their overseas offices or centers and have production units in those countries too which made them truly multi – national in nature. The changing tricks of trade along with rise in competition in almost all of the segments led to increased production of goods. The increase in the production essentially led to round the clock continuation of production. As a result, a considerable portion of population engaged in those production units had to be at their office in the odd hours. Such factors led them to face problems in terms of shopping and marketing. The priority sector like health or police also had similar problems. The Southland Corporation of the United States observed tremendous opportunity in such changing ways of living. The company chipped in Seven – Eleven convenient stores that remained opened for twenty four hours of the day and facilitated the marketing and shopping of those who could not attend the market in the regular hours. Seven – Eleven Japan The Southland Corporation achieved tremendous success with its convenient stores of Seven – Eleven. Soon, it ventured into foreign territories. The first choice for the management of the company to initiate overseas operations was that of Japan. The Eastern giant, as Japan is often referred as, Japan had certain features that were particularly beneficial for the success of Seven – Eleven. The economy of Japan was booming and also it had a major portion of the population that could not make to the markets in the regular hours. This part of the population was the primary target group for Seven – Eleven. It was also observed from studies and research reports that the part of the population was ready to even pay extra money for getting the goods at those odd hours as they could not balance between professional life and marketing time. The other important factor that led Seven – Eleven to choose Japan as the prospective place of business was because the population (the prospective clients of the convenience store) of the country was not too scattered and were rather concentrated in the few metropolis. The market of Japan also had various levels of middle men. It was observed that the country as twice the number of wholesalers’ per capita population and twice the number of retailers’ per capita population compared to that of United States (Albaum & Duerr, 2008). It resulted in increasing the cost to the end customers. Many companies perceived this factor to be the real threat for entering in to the Japanese market but the far sighted management of Seven – Eleven correctly observed as the real opportunity as it could offer goods direct to the consumers and could reduce the price by considerable extent. All these factors led Seven – Eleven to enter into Japan. The company had agreed to have a licensing agreement with Ito-Yokado, a large supermarket chain of Japan as it was particularly tough to prosper in to the country without having any basic idea about the legal, political and social strata of the country. The venture of Southland Corporation and Ito-Yokado was highly successful and the retail store of Seven – Eleven prospered by leaps and bounds. But in the year of 1987, the parent company of Seven – Eleven, The Southland Corporation was hit by financial down turn and was about to be acquired by a Canadian company. To prevent such a happening, the Southland Corporation sold off 75% stakes of Seven – Eleven to Ito-Yokado that rendered the brand to be Japanese owned (7 – Eleven, n.d.). Market Exposure It was observed in the case study that the brand Seven – Eleven has ventured in to number of Asian economies like that of Taiwan, China, Hong Kong along with countries like that of United States and Mexico. In most of the countries, it was observed that the convenience store preferred to have its fully owned store (though presently it basically operates through franchises). But in some of the nations, the Seven – Eleven operated with licensing agreement. In such cases, as it happened in Hong Kong and China, the company selected a local partner and it was through them, the Seven – Eleven operated. SWOT Analysis The SWOT analysis is an important tool for the external analysis of any organization. SWOT analysis basically stands for Strengths, Weaknesses, Opportunities and Threats. The important consideration in SWOT analysis is that the strengths and the weaknesses are studied with the company whereas the opportunities and threats are analyzed with the available external environment. Seven – Eleven has been hugely successful in all most all of the markets in entered and below is the analysis of the strengths, weaknesses, opportunities and threats. Strengths The prime strength of the company had been the far sighted vision of the management of the company. It rightly analyzed the changing needs of the customers and could identify the prospective markets. The company also had revamped the distribution channel in Japan and deleted the prevalent layers of middle men within the system. It definitely called for increased profit. The major strength of the convenient store brand had been the working hours. The shop was kept open round the clock and therefore it specifically helped those people who had continuous working hours and could not manage time for marketing in the regular hours. The retail chain managed convenient locations and had the attributes like that of central purchasing that assisted in having reduced prices for the company. Along with the products from other brands, Seven – Eleven also had products from their own brands that facilitated the profit margin by the great extent (Chopra, 2005). Weaknesses There have been no such weaknesses prevalent in the working of Seven – Eleven. The group is performing well. It had brought in various changes in its strategies and always focused on innovation and improvisation. The group should try to retain the highly professional staffs within the company as there have been various other competitors that would like to poach the experienced employees. Opportunities There have been massive opportunities for the Seven – Eleven across the globe. The company has been operating round the clock that has been thoroughly beneficial for the masses of Japan, Taiwan, Hong Kong and other countries. The population of the countries are scattered within few areas i.e. cities that again facilitates the growth of convenient stores like Seven – Eleven. The growth of internet has also been chiefly beneficial as the store had deals with few of the leading companies and the products that were sold through internet marketing of those companies were made available at the stores of Seven – Eleven. This went well with the customer base of the eastern countries like Japan and Hong Kong as the population of this part of the world did not rely upon divulging their credit card details. The Seven – Eleven sold those goods from their counters and it facilitated extra footfalls in their stores as that benefitted their products to be sold along with the delivery of the products of the other countries. Also, the retail giant could attract a certain amount of fees from such a scheme. The increasing standard of living in these eastern parts of the world also improved the opportunities for Seven – Eleven (Doole & Lowe, 2008). Threats Amidst the huge success that the retail chain enjoyed, it was not without threats. As Seven – Eleven has been a foreign company that has been dealing with overseas operations, it had several problems regarding understanding of the politics, social strata and legal frame work in those countries. The company had to gel in well with the culture in those countries where it operated. The Seven – Eleven also faced certain international legal problems when it ventured in to the conservative countries like China and Hong Kong and they could establish their own operational stores in those countries and rather had to depend upon licensing agreements with the local companies. The competition in the international market also increased in the retail segment and many large players were turning into this lucrative arena which was also a threat to the supremacy of Seven – Eleven (Usunier & Lee, 2005). Seven – Eleven in Hong Kong From the above analysis, it was quite evident that the business strategy that Seven – Eleven followed was extremely successful. The company basically opened its own store in to the countries where it had ventured. Off late, after being acquired by the Japanese management, Seven – Eleven experienced massive growth. The number of stores increased many fold in this period and also the retail store ventured into many countries. But a contrasting fact was observed when the company tried to have trade relations with Hong Kong. Seven – Eleven ventured into the markets of China and Hong Kong with licensing agreement with a local company of Hong Kong. It was observed by the experts that the company followed a conservative approach while entering into the economy. Also, the products available in to the stores of the company in its Hong Kong locations were much different from those available in other areas as it concentrated only upon food products. The figures from the company stated that it had 20% lesser products into the Chinese market though the stores remained opened for 24 hours. Reasons for Licensing Agreement There have been quite a few reasons for the conservative approach in Hong Kong and China by Seven – Eleven. The broad reasons can be classified as below: Macro Factors Micro Factors Benefits of licensing Macro Factors Macro factors are those that affect the entire environment of trade and finance of the aimed market. The macro factors included two major sub – factors: Political Factors – The period when Seven – Eleven planned to venture into the Hong Kong market, there were certain political tensions prevailing in the country. The Hong – Kong which was ruled by Great Britain then, was being planned to be shifted under the Chinese rule. It was evident that a business house that has sole intention of making profits cannot risk by investing in such a country. Therefore, it looked for partners so that the risk that is associated in such venture could be shared. And for sharing of the risk, it was perfect to have local companies as partner because they had adequate knowledge about the local market along with the political system. It was one of the prime reasons for Seven – Eleven to acquire licensing agreements in Hong Kong and China and not to invest full – fledged. Economic Factors – As the companies conduct feasibility study before venturing into a foreign market, economic factors often take an important place. The companies try to forecast through such studies that it has enough possibilities to earn desired level of revenue from the market. In this factor too, the results that Hong Kong market depicted in those period of 1981 was not at all great. The four stock exchanges of Hong Kong were just amalgamated and the market was not settled at all. There were restrictions for foreign companies as the exchange stated, “The Securities Commission adopted a trigger point of 35% as the maximum percentage shareholding in a listed company that any group or individual could hold without making a general offer for all the remaining shareholders” (Hong Kong Exchange and Clearing Ltd, n.d.). As it was quite evident that the market was not yet settled, there were falling prices of property and land. The overall structure of the economy hinted upcoming financial crisis and therefore it was prudent for the foreign company like Seven – Eleven not to inculcate the comprehensive risk on itself. Rather, it looked for the local partner that could guide Seven – Eleven through the local economic turmoil. Micro Factors The micro factors are those that are within the periphery of the company. Micro factors directly affect and influence the business of the company in the short run. Some of the micro factors were as follows: Purchasing Power – It is evident from the case study that the purchasing power of the people in the Chinese and the Hong Kong market was much lesser compared to other companies where Seven – Eleven was operational like that of the United States and Japan. Though, the per capita income was on the rise, yet it could not be denied that the unemployment also increased as China had massive population. Therefore, it was evident that the company was not sure about its future into the market and so, did not have the intention to bear all the risks. Consumer Behavior – The consumer behavior is another important aspect of marketing. It includes various steps starting from problem recognition to after sales service. The behavior pattern of the consumers of the intended market was still traditional. It can be said from the case study that the boom of internet was yet not felt within the markets of China and Hong Kong. Therefore, the role of Seven – Eleven as the pickup point for internet sales could not be realized in these countries. Also, the consumers relied upon the traditional ways of marketing like buying from the specialized stores and the culture of mall was yet not prevalent (Hawkins, 1986). Market Economy – The market was of Hong Kong and China was not free from competition. There was a local group named Well Come which provided stiff competition to Seven – Eleven. Therefore, it was absolutely fine for the foreign retail giant to ensure local partnership so that it could be aware of the local tricks of the trades that was essential to know about the local market. Benefits of Licensing It could appear to the readers from the above analysis that the reasons for opting licensing agreements for Seven – Eleven were all compulsive and not at all benefitting for the company. But careful study of the facts depict a different picture altogether. There were quite a few benefits for Seven – Eleven that the company could ensure as it entered the market through licensing agreement and through wholly owned stores. Some of them are discussed as follows: Lesser Cost – As Seven – Eleven did not initiate their own stores at the Hong Kong and the Chinese market, it was evident that the company did not have to incur the cost of owning stores. Moreover, with the local partner, the cost to be incurred also could be shared. Reduced Risks – It was evident from the above study that the market of Hong Kong and China was not thoroughly prepared for the retail store like Seven – Eleven. The customers of those countries were not avid users of internet and therefore the business of pick up points for the internet marketers did not have great prospects in the country. Also, the purchasing power and the per capita income were on the lower side and the culture for such store was not popular enough in the aimed markets. Therefore, it can be said that the company took right decision as they did not set up own store at these countries. Local Expertise – The licensing agreement also facilitated to have a trade partner for Seven – Eleven in to the markets of Hong Kong and China and that was tremendously beneficial for the company as it could get direct assistance about the prevailing political, social and economical conditions. Faster Entry – It was evident from the case study that with the licensing agreement, Seven – Eleven could make the entry in to Hong Kong much faster that that would have been possible if it would have come to the with the idea of owned stores. Technology – The licensing agreement also facilitated the retail giant to actively help in transferring technology in Hong Kong from other nations and other parts of the world. Such a thing would not have been possible if the store would have been fully owned by the company. Conclusion It might appear from the case study that the successful retail firm was bound to have licensing agreement when it tried to enter Hong Kong and China. But reading between the lines and detailed analysis of the case study suggests it was a deliberate move by the company in order to strike a balance between risk and profit in an uncertain and conservative economy like that of Hong Kong which further cemented the success of Seven – Eleven. References Albaum, G. & Duerr, E. International Marketing and Export Management. Prentice Hall PTR, 2008. Chopra, S., 2005. Seven-Eleven Japan Co. Kellog School of Management. [Online] Available at: https://www.kellogg.northwestern.edu/EMP/intranet/preenroll/Seven-Eleven_Final_0205.pdf [Accessed March 08, 2010]. Doole, I. & Lowe, R. International Marketing Strategy: Analysis, Development and Implementation. Cengage Learning EMEA, 2008. Hong Kong Exchange and Clearing Ltd, No Date. Hong Kong Stock Market Historical Events. 1981. [Online] Available at: http://www.hkex.com.hk/data/factbook/2004/e/30.pdf [Accessed March 08, 2010]. Hawkins. Consumer Behavior. Tata McGraw-Hill, 1986. 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