A Major British Supermarket Chain Plans - Coursework Example

Hong Kong as a Destination for International Business Expansion: An Analysis By Introduction Establishing subsidiary in a new foreign market is a common business strategy followed by multinational corporations to expand their business and to increase the market share. Although it is one of the most expensive business expansion strategies, it can provide a corporation with complete control over the venture. Since this type of business expansion involves huge investments, firms need to conduct deep country analysis and market opportunity analysis before taking a final decision on the proposal. PESTLE analysis is a potential tool to evaluate the macro-environmental factors of a country whereas the Porter’s five forces model can analyse the industry forces in a comprehensive manner. In the current scenario, a major British supermarket chain plans to invest in Hong Kong as part of its global expansion initiatives. This paper will analyse the feasibility of this business proposal using PESTLE and Porter’s five forces tools. The paper will also suggest whether or not it is good for the British supermarket chain to proceed with the plan. An Overview of Hong Kong Hong Kong, officially known as H.K, is a special administrative region located on the south coast of China. According to the Market Research Reports (n.d.), this region is well known for its deep natural harbour and expansive skyline. Hong Kong is recognised as one of the densely populated regions in the world with 426 square miles of land and a population of over seven million people; and the region’s population comprises of 93.6% ethnic Chinese and 6.4% other groups (Ibid). Hong Kong is one of the world’s Alpha+ cities with approximately 22.6 million foreign people visiting the country annually. The country has an average life expectancy of 83. The country’s economic growth is greatly influenced by Chinese government policies and interventions. PESTLE analysis Political Factors While analyzing the political environment of Hong Kong, it is identified that the country enjoys great autonomy as a special administrative region in all governance areas except defence and foreign affairs (GovHK: Government structure, n.d.). The country’s governance system is stable and the ‘one country, two systems’ model has been working well in the region, with limited Chinese governmental interventions (Chinadaily, June 11, 2014). Although Hong Kong does not have administrative control over certain areas like defence and foreign policies, the decision making power belongs to Hong Kong authorities. Hong Kong does not have a perfect democratic system of governance because only 30 members of the 60-member Legislative Council (Legco) were elected directly from different geographical constituencies (Market Research Reports, n.d.). Increased Chinese interventions in the country’s democratic process become an obstacle to political reforms in Hong Kong. A stable governance system in Hong Kong may support the global expansion plan of the British supermarket chain. Economic Factors Hong Kong’s service-oriented economy that offers low taxation and free trade appears to entertain the long-term strategic goals of the British supermarket chain. In addition, Hong Kong dollar is the world’s eighth most traded currency. The current weaker economic performance of the country’s economy could be attributed to the US economic downturn and the ongoing Japanese economic crisis. Individual banks in Hong Kong have been given the authority to determine interest rates so as to ensure that the rates are market-driven (Market research Reports). It is important to note that Hong Kong lacks a central banking system, and this situation may pose crucial challenges to the balanced growth of the economy. In 2013, Hong Kong’s GDP stood at $381.3 billion and the country attained 8th rank in terms of PPP per capita (Index Mundi, n.d.). Statistical data indicate that the service sector accounts for over 90% of the Hong Kong’s GDP. Social Factors When it comes to social factors, it seems that Hong Kong’s lifestyle has been greatly influenced by British colonisation and it can give the British supermarket chain an edge over its competitors in the Hong Kong market (Market Research Reports, n. d.). In addition, Hong Kong people are receptive to Western food and cultures, and hence it would not be a challenge for the supermarket chain to manage the cultural factors of the country. However, Hong Kongese also value their customs and traditions. Since the country has been politically separated from the mainland China, Hong Kong has a unique local identity (Kaeding 2011, p.1). Technological Factors Hong Kong has a well-developed technological landscape that is capable of enhancing the living standards of its citizens. The country’s highly developed infrastructure and transportation systems add to the competitive market opportunities of Hong Kong. There is an efficient air travel system in Hong Kong that connects the country to different parts of the globe. As a result, the British supermarket chain would not find any difficult shipping commodities to the country. In addition, internet and information technology have gained wide popularity in Hong Kong and the people rely greatly on the E-commerce sector. This can play a significant role in the supermarket industry. Legal Factors On the strength of the ‘one country, two systems’ model, Hong Kong maintains a separate legal system which is not regulated by China. Even though Hong Kong is a special administrative region of China, it has a separate legislative framework and ‘a judiciary independent of the government (City University of Hong Kong, April 2, 2015). For the British supermarket chain, the country’s legal environment provides strong support for its competitive economy promoting a free market concept. The Hong Kong’s judicial system focuses particularly on the proper enforcement of contracts and timely resolution of disputes; and for the supermarket chain, the most fascinating feature of the Hong Kong’s legal system is that it requires minimal legal procedures to set up a business (City University of Hong Kong, April 2, 2015). Environmental Factors With the realisation of far reaching environmental impacts of greenhouse emissions and waste dumping, the Hong Kong’s government has taken a series of measures to keep the country green. “Hong Kong applies a number of international environmental protection conventions and has enacted a series of laws and regulations as part of the Governments commitment to environmental protection” (GovHK, n.d.). Currently, the country applies international conventions in areas such as conservation, global climate change, hazardous waste, marine pollution, ozone layer protection, and persistent organic pollutants (Ibid). In this context, the British supermarket chain may struggle to gain great market acceptance unless it strictly complies with the environmental laws and regulations of the Hong Kong government. Porter’s Five Forces Analysis Degree of competitive rivalry It seems that the intensity of competition is relatively high in the Hong Kong’s supermarket industry (Robertson, 30 June, 2014). As limited product differentiation options are available in the supermarket industry, firms operating in this sector are forced to compete with almost similar products. With the emergence of e-trade and home delivery services, competition has reached its peak and firms find it difficult to offer something different to the customers. In addition, companies are paying increased attention to price and value so as to keep existing customers committed to the business in the long term and to attract prospective customers. Therefore, the British supermarket chain will need to address high degree of competition threats if it enters the Hong Kong’s supermarket sector. Threat of new entrants Threat of new entrants is low in the supermarket sector because of the multiple potential entry barriers. First, cost of market entry is too high in this sector, and hence the British supermarket chain does not need to fear of the new market entrants. Second, the company needs to recruit a large number of employees with different skills in order to establish a new subsidiary of supermarket. It would be really a difficult task for local firms to attain such a diverse workforce because they have limited recruitment opportunities. Therefore, only international business chains are likely enter the Hong Kong’s supermarket industry. Threat of substitutes It is clear that the threat of substitutes is high in the supermarket industry because firms under this sector market almost same categories of products. When the same kinds of products are offered by different marketers, customers would choose the most quality product at the cheapest rate. Hence, the British supermarket chain has to offer superior quality products at affordable rates to confront with the intense competition and to avoid the threat of substitutes. In addition, the organisation should be more innovative so as to offer variety products to customers and to gain a competitive edge over the market rivals. Buyer power Obviously, the buyer power is high in the supermarket industry because customers have numerous shopping options available. Since the product differentiation options are very limited for supermarkets, they often find it difficult to differentiate their brand from others and to deliver a better shopping experience to consumers. Since buyers are able to purchase the same kind of product from different marketers, they are more likely to bargain over prices. If the supermarket chain is not willing to compromise its prices, it may lose its market share to competitors that offer more affordable prices. In short, the high bargaining power of buyers may pose serious threats to the feasibility of the British supermarket chain’s operations in the Honk Kong. Supplier power The supplier power is very low in the Hong Kong’s supermarket industry as there are numerous potential suppliers operating in this sector (Food Export Association of the Midwest USA, n. d.). In addition, supplier switching cost is extremely low, and hence firms can easily switch their suppliers if they do not operate up to the standards. Hence, suppliers can exert little pressure on the supermarkets and this situation can assist the British supermarket chain to enhance the autonomy of its operations. Another benefit of low supplier power is that the British supermarket chain can successfully insist its suppliers to be a socially responsible corporate citizen and thereby improve its market acceptance. Recommendations From the PESTLE analysis and the Porter’s five forces model, it is identified that Hong Kong is a potential global market destination for the British supermarket chain to establish its business and to serve its long-term strategic goals in an efficient manner. The PESTLE analysis makes it clear that Hong Kong is a service-oriented economy that promotes the free market concept. Hence, the British supermarket is free to enter the Hong Kong’s market and to engage in trade activities without any operational restriction. In addition, the Hong Kong government requires minimal legal procedures to set up a business in the country so as to enhance the volume of trade activities in the region and thereby to contribute to its GDP growth. In other words, the Hong Kong government welcomes international business enterprises to the country to promote its economic development. As a result, it would be easy for the British supermarket chain to establish its business in Hong Kong and to deliver uninterrupted services to the target population. As the country has a stable court systems as well as law enforcement system in operation, the supermarket chain can obtain strong support from the legal system. From an economic perspective, it is justifiable for the British supermarket chain to proceed with its business proposal mainly because the Hong Kong’s economy promotes concepts such as free trade and low taxation. This favourable economic environment would assist the supermarket chain to cut down the operating costs and taxation costs significantly and improve net profits. Furthermore, the business chain would be able to offer cheaper prices to its customers when it is operating under a free market environment characterised with low taxation. The increased significance of Hong Kong dollar in the global currency market also contributes to the supermarket chain’s feasibility in the Hong Kong market. Although Hong Kong economy is currently troubled by the US economic downturn and the ongoing Japanese economic crisis, it has the potential to bounce back with an amplified growth rate. The influence of British colonisation on Hong Kong people can also give the supermarket chain an edge over competitors in the country’s marketplace. To justify, the British supermarket chain would not find it difficult to manage cultural diversity in the Hong Kong’s market environment and consequently the firm will have only limited cultural barriers to overcome. The Hong Kong people’s eagerness to adopt the Western culture may also turn out to be a potential opportunity to the British supermarket chain. Although the industry forces such as degree of competitive rivalry, threat of substitutes, and buyer power are not in favour of this business proposal, other forces like threat of new entrants and supplier power contribute to the feasibility of this plan. Since entry costs are too high in the supermarket industry, the British supermarket chain would face low level threats from new market entrants. In addition, the limited supplier power may benefit the organisation to obtain the uninterrupted delivery of materials at cheaper costs and to switch suppliers whenever seems necessary. Hence, it is highly recommendable for the British supermarket chain to enter the Hong Kong market as part of its global business expansion. Conclusion From the above discussion, it is clear that Hong Kong is a budding global market destination for the British supermarket chain to invest and to generate potential returns. The most attractive feature of the Hong Kong market is that it fosters free trade and low taxation. In addition, minimal legal procedures are required by the Hong Kong government to establish a new business venture in the country. As Hong Kong is an Alpha+ city and one of the most densely populated areas in the world, the supermarket chain can gain extensive exposure to different customer groups. The factors leading to the hostility of the Hong Kong’s supermarket industry include high degree of competitive rivalry, increased threat of substitutes, and elevated buyer power. Despite these issues and current weaknesses in the economic growth, Hong Kong is still a better investment option for the British supermarket chain. References Chinadaily (June 11, 2014) One country, two systems policy in HK. Available at: http://usa.chinadaily.com.cn/epaper/2014-06/11/content_17579570.htm City University of Hong Kong (April 2, 2015) Business Information for Hong Kong, Shanghai and Taiwan. Available at: http://libguides.library.cityu.edu.hk/content.php?pid=278195&sid=2294713 Food Export Association of the Midwest USA (n.d.) Hong Kong Market Profile. Available at: https://www.foodexport.org/Resources/CountryProfileDetail.cfm?ItemNumber=1014 GovHK (n.d.) Environmental Laws & Regulations. Available at: ttp://www.gov.hk/en/residents/environment/business/laws.htm GovHK: Government structure (n.d.). Available at: http://www.gov.hk/en/about/govdirectory/govstructure.htm Index Mundi (n.d.) Hong Kong Economy Profile 2014. Available at: http://www.indexmundi.com/hong_kong/economy_profile.html Kaeding MP (2011) “Identity Formation in Taiwan and Hong Kong – How Much Difference, How Many Similarities?” In: Taiwanese Identity in the 21st Century: domestic, regional and global perspectives edited by Gunter Schubert and Jens Damm, (2011) London: Routledge, pp. 258-279. Market research reports (n.d.). Hong Kong. Available at: http://www.marketresearchreports.com/countries/hong-kong Robertson B (30 June, 2014) Hong Kongs competition regulator faces challenges in supermarket sector. South China Morning Post Companies. Available at: http://www.scmp.com/business/companies/article/1543169/hong-kongs-competition-regulator-faces-challenges-supermarket Read More