Internationalization of Top Shop - Case Study Example

Internationalization of Top Shop Table of Contents Section organizational analysis 4 Company Situation Analysis 4 Research of the company, its financial data 4 Product line 4 Description of the strategies 4 Industry Analysis 5 SWOT analysis 6 Section 2: Factors for international expansion 8 Global Market Screening 8 Identification of high potential country markets 8 Macro-level variables identification 8 Market accessibility variables 9 Micro-level variables 9 Section 3: In depth market analysis 9 Best target market 9 Competitors in target market 9 Sales and market share potential 10 Market entry conditions 10 Distribution channels 10 Section 4: Entry strategy 10 Entry strategy based on strengths and competition 10 Mode of entry 11 Marketing strategy 11 Marketing budget 11 Section 5: Trade related strategies 13 Export-Import Strategy 13 Documents required 13 Tax and custom duties 14 FTA’s and other trade agreements 14 Information relating to methods of payments 14 Reference list 16 Section 1: organizational analysis Company Situation Analysis Top Shop is a British multinational fashion retailing company. The headquarters of the company is located at London and it has been successful at developing approximately 500 shops across the globe. Of these, approximately 300 shops are located in the U.K itself. Top Shop is a part of the international retail brand Arcadia. In general, the retail sector across the globe has been able to grow significantly due to improved production and international trade alliances. Being in the retail segment, it is essential for the company to respond to consumer tastes. The online business segment of Top Shop draws a large number of consumers (Top Shop, 2015). Research of the company, its financial data As per the analysis carried out by us regarding the financial position of Top Shop, it was found that the company was valued at £2 billion during the financial year 2013. The company’s financial resources are seen to be growing. Profits for the year 2013 totalled to about £110 million. During the financial year 2013-2014, the company was successful at being able to achieve a growth of 5.4% in their shareholder values (Top Sop, 2015). Product line According to the practical observations made by me and my research team, the company’s main products include clothes, shoes, make-up products and accessories. It had initially begun as a clothes retailer solely and then expanded their activities by including other fashion retailing products (Top Sop, 2015). Description of the strategies Top Shop has been established as an affordable retailing brand. While most retailing firms in the U.K belonged to the high end category, there existed very few brands that provided quality products at cheaper prices. The firm’s adaptation and localization strategies allow it to charge lower prices than most large retailing organizations. The major markets of the company are in the U.S and the U.K. The company has strategic tie ups with producers and suppliers in these two markets. Top Shop has a very flexible organizational structure and finds itself to be easily adaptable with different market conditions. Another important strategic operational policy of Top Shop is their sourcing activities from the emerging nations of South America, Africa and Asia. Such strategies have further enabled Top Shop to acquire low costs of production and charge lower prices. The company depends upon its team of efficient designers and marketing experts to achieve success. Top Shop values their employees and ensures having highly dedicated team of workers across every location of their operations (Gupta and Govindarajan, 2000). Industry Analysis The retail sector contributes approximately £500 million in terms of revenue to the economy of the U.K. The sector is seen to be consistently growing in terms of revenue and the number of players which operate in the sector. Next Plc, Tesco and John Lewis are the prime competitors of Top Shop (Top Sop, 2015). The retail sector attracts a lot of foreign direct investments. The sector is also responsible for influencing fashion and establishing new trends across the globe. The retail sector is extremely demanding in terms of innovation and creativity. It is a highly competitive, and firms require investing hugely to make their activities widespread. Most of the prime players of the U.K sector have been able to grow internationally. This has facilitated international movement of resources. The target market segment for Top Shop in the markets of the U.K, the U.S and other European nations are youngsters and middle aged consumers. Since the company sells both high end designer products as well as affordably priced items, it targets the high income as well as the middle income consumers (Hill, 2008). SWOT analysis Strengths Sells cheap / affordable as well high end products. Ease of accessibility due to widespread presence. A huge range of choices in every department. High brand image and positioning. High quality products. Contributes towards the wellbeing of the society through participation in charities and other social causes. Ability to assess the needs of consumers and provide services accordingly. Reaching out to customers through website marketing and sales. Weaknesses At times the company faces difficulties in managing such a widespread network. The costs of production in the recent times have soared due to poor economic conditions, lower demand, lack of resources and high costs of raw materials. This makes it difficult to charge economic prices. The quality of the products fall low in respect to other retail brands such as Next and Tesco. The ease of accessibility and widespread presence takes away uniqueness. This makes it hard to attract consumers who prefer purchasing exclusive garments. The customer services section of the business is not well developed. At existing quality and prices, Top Shop would find it difficult to shift to high end retaining in future. Website sales activities are not as well developed as it in case of other retailers and lacks product detailing. Many of the ideas and styles are inspired from other top retail brands, making the company further lose its exclusivity. Opportunities The target consumers are youngsters who are essentially large in number. The brand has been associated with celebrities, which facilitates in enhancing its image. International expansion opportunities, especially in the emerging nation of Asia such as India, as prices of products are not very high. Product line expansion opportunities by including stationeries, toys, home décor and other items. The online arena can be further developed for achieving growth. Threats Competition from high end retailers. New styles and fashion trends brought in by new entrants into the industry. Growing completion in the overseas markets. Lack of differentiation from other brands. Lack of proper structuring of the online marketing and retailing segment. Section 2: Factors for international expansion Global Market Screening Top Shop has its business mainly established in the European and the North American nations. Shop outlets are mainly located in the urban areas. Since fashion consciousness and individuals who are willing to spend highly upon retail products exist in urban locations, the company finds it profitable to concentrate in these areas. Since Top Shop has a number of closely located outlets in the U.K, exclusivity and uniqueness is lost (Rugman and Verbeke, 2004). Identification of high potential country markets Top Shop may consider expanding itself to semi urban areas. The competition from other premier retail brands in semi urban locations is low, making it easy for Top Shop to attract consumers. Top Shop also has minor presence in the markets of the Middle East and Asia. The demand for retail fashion garments in the Middle East is rapidly growing, making it suitable for Top Shop to invest there in. Similarly due to low price advantages, Top Shop can easily enter a number in markets in Asia (Drori, Meyer and Hwang, 2006). Macro-level variables identification While selecting nations for expansion, it is essential to consider certain macro-economic variables. These include factors such as gross domestic product, inflation, regulatory framework, foreign investments growth, literacy rate and unemployment rate. Macro economic conditions in the developed nations remain more or less the same, whereas, in case of the developing nations they are seen to be growing. International organizations are generally seen to analyze GDP values for evaluating the conditions related to economic growth existing in a nation. When factors of production are efficient, it usually has a positive impact upon the productivity of that nation. In case of developing nation, the factors which attract multinational organizations are the availability of cheap labour, easy access of resources and low cost of production. We strongly believe that considering the strategy of operations of Top Shop, it is essential that the company focuses on maintaining their cost of production low. As a result, expanding into the developing nations would be considered suitable (Alexander and Doherty, 2009). Market accessibility variables Markets accessibility can be effectively measured through factors such as industry saturation, number of firms existing in the industry, level of competition and the availability of resources. In case of developing nation and also in many sub urban regions of Europe, North and South America, industry conditions are less saturated. As a result, resource exploitation levels are low and assists Top Shop with cost benefits. Moreover, developing nations in Asia are rich in labour. Top Shop must essentially consider such factors before entering a new market (Alexander and Quinn, 2002). Micro-level variables Micro economic variables essentially include customers, employees, competitors, distributors, investors and the general media. As per our scope of knowledge, in relation to expansion of business activities, it is essential for firms to consider certain micro economic factors as well before enhancing their span of operations. These factors are seen to impact the day to day business activities of the firm. Top Shop must analyse the customer profile of the nation in which they are planning to expand most essentially, amongst the other factors (Quinn and Doherty, 2000). Section 3: In depth market analysis Best target market Top shop may consider expanding into the markets of China and Singapore. In both nations, the rate of GDP growth has remained stable. Moreover, the retail market existing therein is laden with high demand. This indicates that Top Shop would be successful at procuring a large number of consumers in these two markets. The political conditions at present are also favorable and it has been observed that indigenous firms and the government authorities are supportive of acquiring foreign investments (Alexander and Myers, 2000). Competitors in target market Yi shion and Meters/bonwe would be the main competitors for Top Shop when they expand into the markets of China. Both firms are successful and well develop brands. Their aim is to provide quality goods at cheap prices. Similarly in case of Singapore, the prime competitors are Espirit and New Look (Evans, et al., 2008). Sales and market share potential The retail market in China and Singapore is continuously expanding. If Top Shop enters the retail market of these two nations they are expected to earn very high profits in the forthcoming years. However, Top Shop may consider diversifying their activities by including grocery items as well. From the general market analysis, it can be deduced that food and grocery are a segment that has been able to achieve high growth and therefore including the same in the product portfolio would be profitable (Evans, et al., 2008). Market entry conditions Although the barriers to entry in the retail market of China and Singapore are low, it is characterized with high competition. Price wars are a common phenomenon in the market. In order to weaken new entrants, existing firms adopt strong marketing policies. Therefore, Top Shop requires framing strong marketing conditions to counter competition. The availability of labor and other resources for the development of Top Shop‘s business are seen to be adequately high (Evans, et al., 2008). Distribution channels There exist numerous medium and small scale enterprises in both China and Singapore who assists large retail chains with distribution and marketing. Hence, Top Shop can easily procure a number of distributors in the nation. Additionally, the transportation networks in the both the nations are well developed (Evans, et al., 2008). Section 4: Entry strategy Entry strategy based on strengths and competition The main competitors of Top Shop in the markets of China and Singapore are able to achieve high success primarily due to their low pricing strategies and well spread presence in the market. Hence top Shop is required to enter the markets as a premium priced retailer. Additionally, it would also be required that the company establishes a number of retail outlets in both the nations. Consumers of both China and Singapore are seen to be convenience buyers. Hence, they would associate brand value and image based on the ease of availability and presence in the market (Contractor, Kundu and Hsu, 2003). Mode of entry In case of both the target market segments, the company may choose either franchising or joint venture. Franchising is also known as the licensing technique. Franchising would be considered as a better option as it would allow the retailer to establish itself in a new nation using its own brand name. Also, franchising facilitates organizations to expand themselves using their own business models and strategies. However if the franchising model becomes difficult to be adapted, the company may alternatively consider to take up the Joint Venture model to establish itself firmly in either of the two nations. The joint venture model might take away the firms power to be able to establish itself under its own brand name in the market. However, considering the competition it can be difficult to enter the markets as franchise stores (Contractor, Kundu and Hsu, 2003). Marketing strategy The company requires adopting the economic pricing policies while entering the markets of China and Singapore. Top Shop already enjoys a very strong brand position in the markets of the U.K and the U.S. This facilitates the company to enter the nations with adequate reputation. In case of promotional methods, newspaper, online and television advertising are considered to be most effective. In order to develop suitable distribution networks, the company is required to enter into contracts and agreements with numerous firms. Since Top Shop is unaware of the core market conditions, developing ties with existing markets would prove to be beneficial. Moreover, the company can take advantage of their experience and market knowledge (Contractor, Kundu and Hsu, 2003). Marketing budget Cost of entry Initial cost of entry Amt (£’million) Singapore China Media promotion 4.5 3.8 Public relations 0.7 0.9 Market research 0.5 0.6 Establishing franchise stores and offices 500 450 Materials, men and technology. 316 275 Forecasts related to future sales Amt (£’million) 1st year 2nd year 3rd Year 4th Year 5th year Singapore 75 79 85 96 103 China 65 73 78 84 88 Projected income Amt (£’million) 1st year 2nd year 3rd Year 4th Year 5th year Singapore 5.6 7.8 7.4 8.1 8.2 China 4.3 5.2 5.5 6.1 6.8 Section 5: Trade related strategies While expanding into foreign nations, a number of trade related policies and agreements are required to be followed. These policies are essentially established by the government. Since the trade relations between Singapore and the U.K are strong, the company would be able to secure a number of cost benefits while importing and exporting products. However, liberalized trade agreements between China and Singapore have not been well developed (Quinn and Doherty, 2000). Export-Import Strategy Top Shop would mainly require importing expertise, technology and machines for the development of their overseas business. Since the company is required to maintain low costs of production, it would be essential to manufacture products within the nation of operations itself. Hence resources would be required to be procured locally. However, the company can take advantage of the cheap cost of production facilities and export products to the markets of the U.S and the U.K and other western nations (Quinn and Doherty, 2000). Documents required The main documents required in importing and exporting products for organizations, as imposed by the World Bank are (Gupta and Govindarajan, 2000): 1) Bill of landing 2) Commercial invoice and packaging list 3) Bill of export 4) Bill of entry 5) Shipping bill 5) Foreign Exchange 6) Terminal Handling Receipt 7) Technical Standard Certificate 8) Inspection report 9) Cargo release order Tax and custom duties China Singapore Corporate tax rates 25% 17% Personal tax rates 45% 20% Value added tax 17% - GST - 7% FTA’s and other trade agreements There are no Free Trade Agreements (FTA) existing between the nations of China and the U.K. However, Singapore has a number of trade agreements with the U.K, making it easy for the company to export and import products more liberally. Additionally, a number of economic and business partnership agreements are under processing enabling organizations to further develop trade relations between the two nations (Gupta and Govindarajan, 2000). Information relating to methods of payments The method of payment for exports and imports would be mainly done through interbank transactions. Payments are made on the basis of contracts. Wire transfers are most commonly adopted. Additionally, letters of credit and national electronic fund transfer can be effectively used for transfer of payments. International organizations may procure a number of payments related assistance from intermediary financial firms and organizations (Gupta and Govindarajan, 2000). Reference list Alexander, N. and Doherty, A. M., 2009. International retailing. Oxford: Oxford University Press. Alexander, N. and Myers, H., 2000. The retail internationalisation process. International marketing review, 17(4/5), 334-353. Alexander, N. and Quinn, B., 2002. International retail divestment. International Journal of Retail & Distribution Management, 30(2), pp. 112-125. Contractor, F. J., Kundu, S. K. and Hsu, C. C., 2003. A three-stage theory of international expansion: The link between multinationality and performance in the service sector. Journal of international business studies, 34(1), pp. 5-18. Drori, G. S., Meyer, J. W. and Hwang, H., 2006. Globalization and organization: World society and organizational change. Oxford: Oxford University Press. Evans, J., Bridson, K., Byrom, J. and Medway, D., 2008. Revisiting retail internationalisation: Drivers, impediments and business strategy. International Journal of Retail & Distribution Management, 36(4), pp. 260-280. Gupta, A. K and Govindarajan, V., 2000. Managing global expansion: A conceptual framework. Business Horizons, 43(2), pp. 45-54. Hill, C., 2008. International business: Competing in the global market place. Strategic Direction, 24(9), pp. 43-65. Quinn, B. and Doherty, A. M., 2000. Power and control in international retail franchising-Evidence from theory and practice. International marketing review, 17(4/5), pp. 354-372. Rugman, A. M. and Verbeke, A., 2004. A perspective on regional and global strategies of multinational enterprises. Journal of International Business Studies, 35(1), pp. 3-18. Top Shop, 2015. About Us. [online] available at: [Accesses 14 April 2015]. Read More