Competitive Rivalry - CB Richard Ellis Group - Literature review Example

Competitive Rivalry within Global Retailing Industry CB Richard Ellis Group has reported that the distribution of retailers is slowly but surely becoming flat with each passing day. The research firm has also pointed out that global perspective of retailing has increased significantly in the last few years. CB Richard Ellis Group (2012) has stated that global retailing industry is becoming hypercompetitive due to the increase of both international and domestic players. According to the research, published by the CB Richard Ellis Group, more than 60% of the retailers in North America and Europe have established their presence in Middle East Asia, South East Asia, Africa and Oceania. It is evident from the research report of CB Richard Ellis Group that, retailers do not want to limit themselves to the country of their origin; rather they are ready to compete with other businesses in the global market place. Multidimensionality and competitive rivalry of global retailing has influenced the researcher to select retailing industry in order to write this essay. Objective of this essay is to understand competitive rivalry within global retailing industry on the ground of theoretical concepts like resource based view, core competency, porter five forces etc. In the first section, the essay will highlight theoretical underpinnings regarding concepts like competitive advantage, market positioning and resource. In the second part, the essay will discuss competitive rivalry in the global retailing industry. In the third part, the essay will discuss about core competency, threshold and internal resource requirement for global retailing companies. In the last portion, the essay will discuss about the strategies for a retailer to become successful in global context. Research scholars such as Ma (2000) has pointed out that there cannot be one universal competitive advantage for all companies. Every company designs the company advantage in accordance with their business objective. The scholar has argued that competitive advantage should be analyzed on the grounds of economic theories. Research scholars such as Porter (1980, 1985) have defined competitive advantage as a firm’s capability of achieving defensible and sustainable market position by using internal and external resources. According to Porter (1985), competitive advantage helps a firm to define its distinctive position in the industry. The scholar has proposed “five force framework” to measure competitive advantage for any firm. “Five force frameworks” consists of sub elements like, buyer power, supplier power, market rivalry and threat of substitute and new entrant. Porter (1991) has argued that a firm’s ability to compete against direct and indirect micro environmental and macro environmental challenges determines the dynamics of competitive advantage. According to Porter (1980), achieving cost advantage or high degree of product differentiation can help a firm to create sustainable competitive advantage. The scholar has also stated that a firm can achieve competitive advantage by providing intangible values such as, superior customer service, offering quality product in cost efficient manner etc. to customers. Ma (2000) has justified the argument made by Porter by stating the example of Wall-Mart which has competitive advantage by selling quality merchandises in cost effective manner. Ma (2000) has revealed that competitive advantage for retailers depend on its ability to achieve profitability in sustainable manner. Research scholars such as Eisenhardt & Brown (1998) have stated that competitive advantage for any firm is dependent on its business performances such as, flexibility of operation, speed of service delivery, product innovation capability etc. Research scholars such as Dierickx & Cool (1989), Barney (1986) and Rumelt (1986) have proposed “resource based view” model in order to define competitive advantage. According to them, internal resources of a firm can be segregated into three parts, namely tangible, intangible and human resources; organizations should use all these resources simultaneously for achieving competitive advantage. Rumelt (1986) has stated that, companies can achieve sustainable competitive advantage by using its internal resources. Barney (1991) has segregated resources into: valuable, rare, non-tradable and inimitable, in order to analyze their impact on achieving competitive advantage for firms. For example, resources such as value chain integration have helped Wall-Mart to achieve sustainable competitive advantage, while IKEA’s capability to customize furniture in accordance with customer demand has given them competitive advantage. Hamel and Prahalad (1990) have stated that organizations need to use strategic resources in order to achieve distinctive market position in the industry; capability of using resources in right manner in order to achieve competitive advantage can be classified as core competency of any firm. Generally, organizations use threshold resources in order to maintain its business operation as per industry standard. Porter five force analyses can be used in order to understand competitive rivalry in global retailing industry. Buyer Power Buyer power in the global retailing industry has increased significantly due to increase in fragmentation among industry players. On the other hand, inventory strategy for a particular merchandise of retailers is being directed by the demand of customers. Global retail giants face critical condition in developing and emerging markets, for example, customers in Indian subcontinents prefer retailers providing facilities like home delivery, credit purchase without any interests. Whereas customers in developed economies do not expect such kind of benefits from the retailers. It is evident from the analysis that buyer power of global retail industry is dependent on issues like custom, trend and cultural dynamics of a particular country. Supplier Power Historically, supplier power in the global retail industry has been exploited by retail giants, such as, Marks & Spencer, Target, and Wal-Mart etc. These companies try to source their supplies from suppliers by appointing third party contractors or middle men. The key objective of third party contractors is to source supplies at a lowest possible cost. Appointing third party contractors has significantly reduced supplier power, while the abundance of suppliers has significantly reduced switching cost for retailers. Hence, supplier power in global retailing industry is reckoned as low. Threat of Substitute While retail giants such as Wal-Mart, Target, Walgreen, Tesco etc. maintain large array of merchandise segments in order to operate their businesses, retailers like Zara and H&M deals with single segment such as fashion Apparel. Online retail merchandisers and e-businesses such as Boutique, eBay and Amazon can be classified as substitute of Brick and Mortar retail stores. The major drawback with online retailing is that, it is unable to deliver physical experience associated with a particular merchandise to its customers, despite the fact that a majority portion of global customers prefer to experience the attributes of any merchandise physically before purchasing it. Deficiencies associated with online sales channels have decreased threat of substitute for global retailing industry. Threat of New Entrants Threat of a new entrant for global retail industry is a directed government policy for a particular industry. For example, open economy policy of German government has helped companies like Wal-Mart to expand their retail operation in the country, but the same company is facing problems in entering Indian market due to rigid foreign direct invest policy of the Indian Government. Due to the following reasons threat of new entrant have decreased significantly, 1- setting up large scale distribution channel of retail stores requires huge amount of capital investment and 2- it is difficult for resource constrained new entrants to follow the value chain integration strategy of resource abundant retail giants like Wal-Mart and Target. Competition International retail players such as Marks & Spencer, Wal-Mart, Walgreen, Target etc. are competing with each other in order to maintain their market share and customer loyalty. E-business companies are using dynamic pricing model in order to meet customer demands and achieve competitive advantage over Brick and Mortar retail stores. Hence, it can be inferred that competitive threat for this industry is high. Subsequent section of the study will use the example of Wal-Mart in order to assess the importance of achieving favourable market position in the global retailing industry, by using resources and competencies. Wal-Mart has achieved market leadership position by using its internal resources successfully. The retail giant has decreased its operation expense by more than 30%, whereas its competitors are struggling with high operating expenses. In order to increase profitability the company has decreased its COGS or ‘cost of goods sold’ with help the of cost orientation strategy (reducing cost in every possible occasion). Cost orientation strategy has helped the retail giant to sell products at a 10% lower price in comparison to their competitors. Wal-Mart has used its technological resources such as electronic data processing (EDP) and Radio Frequency Identification (RFID) in order to monitor and integrate activities of its value chain partners. Private satellite communication system has helped Wal-Mart to synchronize vertical and horizontal integration significantly. Coordination between activities like logistics, distribution, warehouse storage and sales has helped Wal-Mart to achieve market leadership position. Employees are the biggest resource for any organization. Threshold resources for any retail organization comprises elements like, capability of retail store staff to offer fast service to the customers, smooth coordination between supply chain partners for decreasing lead time in operation and infrastructural resources to attract attention of customers. Although threshold resources help retail organizations to exist in market place but such kind of resources cannot help an organization to achieve sustainable competitive advantage. The essay will cite example of an American luxury leather goods retailer in order to understand the importance of threshold resources in global retail industry. Coach is a renowned luxury leather goods retailer which is headquartered in the New York City, USA. The retailer specializes in selling handbags, wallets, luggage, and leather accessories to women. The company has used threshold resources such as infrastructure, capable staff and supply chain integration in order to sell their merchandises through retail channels. Relying on threshold resources, Coach could not expand its operation in overseas markets. The retail organization failed to use internal resources in order to achieve competitive advantage in foreign markets. Rigorous market research on consumer buying pattern helps Coach to design merchandises in accordance with lifestyle pattern of consumers in the USA, but the luxury leather goods retailer has failed to convert its resource capability to bring high degree of customization in merchandises sustainable competitive advantage. The study will use example of Marks & Spencer (M&S) in order to explain market positioning strategy of global retailers. M&S is a renowned British retail organization. The retail giant has achieved its unique market position in international landscape by offering diversified in-store merchandise portfolio, developing relevant communication message, inventory management and recruiting capable people to handle business operation. Luc Vandevelde (CEO of M&S) has transformed vertical structure of the organization into flat structure, in order to increase scope for faster decision making and increase in efficiency for customer relationship management. M&S uses global sourcing strategy for reducing cost of operation. The British retailer designs its inventory strategy for an individual store on the basis of demographic characteristics of customers instead of allocating merchandises on the basis of floor space availability of a particular store. Resource allocation strategies have helped M&S to achieve leadership position in the UK and other European markets. Retailers need to develop both tangible resources and intangible resources in order to achieve competitive advantages over other players. Tangible resources for retailers include: capital assets, technological equipments, store infrastructure, staff working inside the store and supply chain partners. Intangible resources for retailers include: patent, knowledge level of employees, research skill of designers and brand equity of the organization. The essay will analyze importance of internal resources by using example of Zara and Dillard. Zara is a Spanish fashion retailing company. Primary activities in value chain of Zara include: designing, sourcing, manufacturing and retailing. Zara has appointed more than 200 designers, NPD personnel, sourcing specialists for incorporating latest fashion trends in merchandise; and multilayer designing capability has helped Zara to achieve a product failure of only 1%. Zara sources raw materials, fabrics from East and South East Asia (4%), Europe (95%) and Central America (1%) but in order to decrease cost and lead time they do not outsource the manufacturing activities. Zara decreases its lead-time by using techniques like, completing 10%-25% of production before start of the selling season and rest of the production during the selling season in accordance with ongoing fashion trends. Production cycle of Zara can be explained in the following manner. (Source: Palladino, 2010) Zara uses centralized distribution network backed by four warehouses located in Madrid, Leon, Galicia; and Zaragoza and satellite procurement centres located in Mexico, Brazil and Argentina. (Source: Palladino, 2010) Zara uses in-store promotion and unique store design in order to attract customers and generate retail sales. Primary activities of Zara are backed by secondary activities such as, technology integration, infrastructural design, human resource usage etc. VRIO framework can be used in order to assess sustainability of internal resources for Zara. Valuable Rare Costly to Imitate Exploited Competitive Advantage Technology integration in Designing Yes Yes Yes Yes Sustainable High level of integration between sourcing and manufacturing activities Yes Yes Yes Yes Sustainable High level of customization in Store layout Yes No Yes Partially Temporary Furthermore, the essay will use the example of Dillards, Inc. which is a well known fashion apparel and home furnishing retailer located in the USA. Value chain of Dillards, Inc. can be explained in the following manner. Design Dillard encourages its sourcing partners like independent designers to incorporate traditional and non traditional design in merchandise. Sourcing Third party contractors are major sourcing agents for Dillard. Distribution Dillard uses centralized distribution network in order to distribute their merchandise throughout the USA. Retailing The company emphasizes on attracting customers through in-house sales promotion. VRIO framework for Dillard can be shown in the following manner. Valuable Rare Costly to Imitate Exploited Competitive Advantage Web based document sharing system Yes Yes No No Temporary Strong financial position Yes Yes Yes Yes Sustainable Strong Brand Equity among American customers Yes Yes Yes Yes Sustainable Retailers should follow four verticals of globalization which are proposed by George Yip. According to Yip (2003), a retailer should use cost globalization driver, market globalization driver, government globalization driver and competitive globalization driver in order to be successful internationally. Retailers need to focus on activities such as designing business strategy in accordance with government norms of foreign countries, deciding suitable pricing strategy for foreign market, understanding growth trend of a particular foreign market and understanding competitive threat in a particular foreign market in order to become successful in the international market. Eisenhardt & Brown (1998) has stated that companies should use its internal resources in order to achieve competitive advantage while research scholars like Dierickx & Cool (1989), Barney (1986) and Rumelt (1986) have argued that internal resource for any firm is more important than market position. It is evident from the literature review, that both market positioning and internal resources are very much important for any firm. Analyzing literature review of various research scholars and the real world case study of Zara has forced the researcher to believe that a firm can change its market position by using internal resources. For example, Zara has achieved leadership position in market by using its internal resources such as, designing capability, fast procurement cycle and technology integration in value chain etc. It is evident from the Zara case study that internal resource is more important than market position of any retailer. Reference CB Richard Ellis Group., 2012. How Global is the Business of Retail? [online] Available at: [Accessed 23 January 2013]. Dierickx, I. and Cool, K., 1989. Asset stock accumulation and sustainability of competitive advantage. Management Science, 35(12), pp. 1504-1511. Eisenhardt, K. M. and Brown, S. L., 1998. Competing on the Edge: Strategy as Structured Chaos. Boston, MA: Harvard Business School Press. Hamel, G. and Prahalad, C. K., 1990. The Core Competence of the Corporation. [online] Available at: [Accessed 23 January 2013]. Ma, H., 2000. Competitive Advantage and Firm Performance. Journal of Global Competitiveness, [e-journal] 10(2), Available through: Emerald database, [Accessed 23 January 2013]. Palladino, A. P., 2010. Zara and Benetton: Comparison of two business models. [pdf] Available at: [Accessed 24 January 2013]. Porter, M. E., 1980. Competitive Strategy. New York: Free Press. Porter, M. E., 1985. Competitive Advantage. New York: Free Press. Porter, M. E., 1991. Towards a dynamic theory of strategy. Strategic Management Journal, 12, pp. 95-118. Rumelt, R. P., 1986. Strategy, Structure, and Economic Performance. Harvard: Harvard Business School Press. Yip, G. S., 2003. Total global strategy two. New Jersey: Prentice Hall. Read More