Global Business Entry Strategies of Topshop - Coursework Example

Global markets & Entry strategies of Topshop Global markets & Entry strategies of Topshop Introduction The growth of Topshop since the establishment of the British Multinational retailer as a fully dedicated women fashion store for accessories, clothing, makeup, and shoes. Topshop is part of the Acardia Group and has over 500 shops globally with 300 stores situated in the United Kingdom (BOF Team, April 14, 2015). The growth of Topshop to international dominance from humble beginnings in 1964 makes it a good company for the application and analysis of global growth and internationalization strategy, which are the main aims of the paper (Topshop, 2015). The paper will be composed of five sections aimed at providing an in-depth analysis of the company’s situation, screening of the global market, in-depth market analysis, entry strategy and marketing plan, and Rationale for the specific internationalization modality selected for the company. SECTION 1- Company Situation Analysis 1.1 Company Strategic Analysis Topshop is a British fashion retail company operating in the clothing industry with the contact details including email address customer.service@TOPSHOP.COM, address Colegrave House, 70 Berners Street, London. Topshop has a website namely http://www.topshop.com/?geoip=home and is located in London City, Greater London Province, Postal code W1T 3NL, using United Kingdom Pound as its trading currency. Topshop is a member of the Arcadia Group controlled by Sir Philip Green and has 510 stores with 300 of the stores located in the United Kingdom. Topshop has operations in 37 countries with marketing and sales in recent years conducted through the internet. Most of the Topshop stores are located in developed countries including Canada, America, Australia, and United Kingdom. A preference for the developed economies mainly depends on the stable economies and complete business markets allowing for easy entry and success. Financial results of the Arcadia Group, which Topshop is a member in the last three years is shown by the following table (Arcadia Group, 2015). Component /Year Year ended 2013 Year end 2012 Year end 2011 Revenue £ 2,735,712 £ 2,679,019 £ 2682.5m Profits £ 415,724m £ 70,046 m £ 99.5m Topshop is part of the Arcadia Group with the corporate level strategy being growth in terms of market penetration and development of the product line is mainly female clothes, accessories, and shoes. The business level strategy has a focus differentiation strategy on a niche market. 1.2 Product Analysis The product selected for review at Topshop is female clothes for review on internalization and the products aimed at meeting consumer needs. The product has several strengths including affordability, availability of countrywide store coverage, a wide range of clothes for selection by the consumers, established brand image and market position both within and beyond the UK, and multiple price points depending on quality and price (Topshop, 2015). Having a new collection each week is the other strength of the product. However, several weaknesses affect the performance of the product including weak customer service, average product quality, and difficulty in the management of numerous brands, large number of employees, and big stores. Price ranges depending on quality and the brand allowing the product to meet needs of current and new fashion trends, appeal to young people, and understand customer needs depending on age, gender, family structure, and quality and price expectations. In comprising to the competition, the product is of medium quality, technology, and price. The product and the company are in the maturity stage of the lifecycle in the domestic market and at international introduction in the international market. 1.3 Target Market Profile The target market for the product is women offering fashionable women’s clothing, shoes, and accessories with the main target being women aged 15 to 25 years. The end users of the product fall mainly within the target market despite the high competition in the market from Zara, GAP, and H&M shop international and local shop. Stores mainly in developing countries allow the product to reach the target market. Zara is the main competitor with offering of high quality, rapid changes, and creativity in design to meet changing market demand needs. 1.4 International Involvement Zara is involved internationally with the main domestic and international competitors being Zara, H&M, and GAP. The international involvement of Topshop compared to the main competitors is evidenced by the graph below with the data available in the appendix section of the report. In terms of international function organization, Topshop and the competition have sales, marketing team, and global structure by function in the organization, but Zara, H&M, and GAP have international division, which is not available at Topshop. All the four have separate import and export departments, but only Topshop lacks international logistics team, and global structure by product and area. All the four, Zara, Topshop, H&M, and GAP are organized in a matrix structure. Topshop, Zara, H&M, and GAP all have five years or more experience. 1.5 Analysis of the International Environment Resource Audit: aids in the determination of the unique resources present in an organization allowing for the identification and evaluation of core competencies and strategic capabilities of a business. Financial resources: Topshop has a stable financial strength that has been instrumental in allowing the company to have global facilities and platforms for the global success of the company. Physical resources: Topshop has high physical resources with almost every high-end street having a Topshop store that is well-staffed, large stores, and are located in strategic positions to attract clients. Intangible resources: being a member of the Arcadia Group has benefited Topshop in terms of access to invaluable knowledge and insight in the market trends, industry analysis, and guidance to the Topshop management. Human resources: a dedicated Arcadia Group human resource team has been very influential in ensuring the optimal human resource performance and presence at each of the group businesses including Topshop. In-house Public relations team: the Topshop PR team is influential in the development and protection of the Topshop brand in the Arcadia Group charting nee success heights from the business in both domestic and global markets. 1.6 Analysis of the External Environment Topshop operates in the retailing industry and is very strong in terms of the Arcadia Group as depicted by the financials in section 1.1 of the report. Photography is the main user experience that has been the key driver of sales in the recent years with product video being less common. Porter’s five forces Industry Analysis (Porter, 2008, 12) Threat of new entrants: a high threat of new entrants exists that requires Topshop to focus on becoming a high-end quality retailer to appeal to mature clients with the ability to purchase to keep demand, income, and profitability high. Threat of substitutes: a high threat of substitute products affects the ability of Topshop to ensure the exclusivity of the unique designs is maintained affecting demand, profitability, and sales for the company. Bargaining power of the suppliers: substantial bargaining power of the suppliers allows for Topshop to provide new collection every week but is countered using long-term contracts and underpricing. Competitive rivalry: there is a high competitive rivalry with the main areas of competition being quality control and management of the business. 1.7 SWOT Analysis Strengths Affordability Countrywide store coverage Wide clothes range availability Established brand image both locally and internationally Multiple price points depending on style and quality Maturity state in domestic market in product and industry lifecycle International introduction in product and industry lifecycle Introduction of new product line each week Weaknesses Difficulty in managing large store, numerous product lines, and staff Weak customer service Average product quality Opportunities Ageing young customers willing to spend more and are fashion cautious Affordability and choice allowing for success despite tough economic times Global market expansion opportunities Threats H&M provides high competition and collaborates with leading designers and fashion icons Competition from new market entrants including Zara offering trendy outfits at a cheaper price 1.8 Global Readiness It is evident that the company is ready to participate in the global market owing to a high score of 71%. The foreign market presence strategies that will be effective for the firm include having foreign sales branch, foreign sales/marketing subsidiary, and company-owned retail stores. 1.9 Conclusions and Recommendations From the strategic analysis of Topshop, it is evident that there are many competitors including Zara that competes on creativity, quality, and rapid changes. The other conclusion is that the growth rate of Topshop in the United Kingdom has declined. The main recommendation for Topshop is the need for entry into emerging markets to avoid the costs of operation being more than the profits. The other recommendation is the need to be more focused in the target market to be more successful in the global market. SECTION 2: Global Market Screening 2.1 Macro level criteria selection The macro-level selection criteria are population; population ages 15-64, ease of doing business, profit tax, and procedures required for starting a business. 2.2 Macro level data collection From the data collection and analysis, it is evident that China, India, Japan, Singapore, and South Korea are the choice market for internationalization strategy as evidenced in the graph below 2.3 Micro level criteria selection The micro level criteria for the selection of the country include local competitors, internal competitors, imports, and clothing consumption as depicted blow: On micro level screening, India, China, Japan, South Korea, and Singapore have the highest scores. 2.4 Accessibility criteria selection The accessibility criteria for the choice market include tariffs/duties, quotas, location, government stability, and attitude towards importers, Foreign Direct Investment, and Technology transfer as shown below. On analysis of the accessibility criteria, China, India, Japan, Singapore, and South Korea emerge the best-ranked countries. From the macro, micro, and accessibility criteria, China and Singapore emerge the best two countries and will be involved in an in-depth analysis to select the best country for Topshop internationalization. Section 3 In-depth Market Analysis The in-depth analysis of the two countries would not have been possible without the choice of contacts in both countries that ranked 5/5 for China and 3/5 for Singapore. 2.6 Market and company sales potential The analysis of the market and company sales potential takes into consideration demand, competition, consumer purchase motivation, and channels of distribution available. The results of the total market potential and sales potential in Singapore and China are evident in the following graph with China having higher scores. 2.7 Competitive Analysis Analysis of the competition in China using Yi shion and Meters/bonwe and in Singapore the two main competitors would be Esprit and New look that were analyzed. The evaluation and analysis of the competition in Singapore and China were done in terms of E-commerce distribution, pricing strategy, product attributes and benefits, promotion strategy, quality, service, and target market profile. The result of the competitive analysis between the two countries is presented in the following graph with Singapore having better competitive analysis score compared to China. 2.8 Country Entry Conditions In terms of country entry conditions, several factors were considered including import regulations that consist of administrative barriers, import licensing requirements, quotas, and tariffs in Singapore and China. The other consideration was foreign direct regulations in the two countries with answers sought for the acceptance of equity ownership of domestic firms by foreign firms, allowance for the establishment of retail establishments by foreign companies, local borrowing, government restriction on the amount of investment, and restriction by government on earnings repatriation. The average scores of the considerations yielded the graph below depicting Singapore being better than China in terms of country entry conditions. 2.9 Financial and Market entry conditions Financial and market entry conditions mainly involved the tax rates with considerations on corporate and personal tax rates. Foreign exchange rate performance considerations include convertibility of the country’s currency, the stability of the currency, and a good balance of payments. Labor issues in the two countries in form of the labor issues, wage rates, management-labor relations, and strength of labor unions. Country infrastructure includes the banking system, energy, internet connections, telecommunication, and transport systems. Market channel conditions including government regulation of distribution channels, national market coverage of existing channels, and use of existing channels for distribution were analyzed. Another consideration made is the legal environment consisting of ability to establish business in the country, a presence of anti-trust legislation, being a member of WTO, low corruption levels, and the protection of intellectual property. The findings on the financial and market entry conditions of the two countries are depicted in the chart below showing Singapore having a better average score than China. 2.10 The best Target Market Country Through the variable weight of each of the variables, country, market & company sales potential, competition, country entry conditions, and financial & market conditions, China emerged the best ranked country as depicted in the chart below. 2.11 Entry Mode The choice of market entry method that emerges as the best option for the company is having joint ventures of partnership with a local firm in China. The choice of the marketing strategy is that it provides an understanding of the local China market, the culture of the people, and the best strategies to operate the business to ensure effective performance and profitability. Another reason for the choice of the entry strategy is the access to a portion of an already established market and allows confidence to be developed by the company from the understanding of the domestic company providing a platform for profitability and success in China. 2.123 Conclusions and Recommendations The conclusion is that China is the target country owing to the various advantages that will be accessed through operating in the country. Access to a large market and the target market fits China’s demographic characteristics promising to be a successful international market for Topshop. Section 4: Entry Strategy and Marketing Plan 3.1 Country Profile of the selected Country The number of potential customers for China was 100 and 100 annual frequency of purchase with 98 being the selling price and a desired market share of 78% from the country analysis in module 2. The total market potential was 980,000 and company sale potential in China from the analysis is 764,400. On import regulations, China has instituted anti-dumping and anti-subsidy regulations, presence of quota and licensing system but has zero quotas though the tariffs are 17.5%. The other benefits of choosing China include the possibility of foreign firms owning 100% equity of domestic firms, the establishment of retail outlets, local borrowing, and the lack of restriction on amount and type of FDI. However, withholding tax is levied on profits and dividends repatriated. The corporate tax rate is favorable at 25%, China has convertible currency, favorable balance of payments, comparatively stable currency, labor rates of 1.21, minimum working age is 18, and management-labor relations are complex and unpredictable. Labor unions in China are strong calling for healthy working conditions and equality for women and youth. China’s infrastructure includes a developed banking system, diversified energy supply, internet is available nationwide, diversified communication system, and comprehensive transport system. In terms of the marketing channels, central planning has been phased out and adequate coverage of existing distribution channels that will be adequate for the Topshop’s use. Legal regulations make it easy in the establishing business in China, a member of WTO, good ranking in terms of transparency, the presence of antitrust regulation, and the protection of intellectual property. Target Market The target market will be consumers between 16 and 40 years, female, earning more than £800 per month with fashion and relaxing lifestyle. China has a population of more than 400 million females, and the unemployment rate is 5.1% making the target market a potential success. 3.3 Marketing Mix Strategies (4P’s) Product: female clothes is the main product aimed for the Chinese market that will satisfy the same needs, functions and have the same condition for use as the domestic UK market. The market has ability to buy and there is a need for importers receiving government permission to enter the market. The use of the same product and message is the most appropriate product communicating strategy in China compared to UK market. Price: penetration pricing will be used in meeting the entry needs of the products in China through offering a lower price of the products compared to products in the United Kingdom. The benefits of the prices being lowered to access a larger market during entry are made possible owing to the low labor wages in China compared to those in the United Kingdom. Marginal cost pricing will be chosen as the marketing strategy allowing for the marginal costs of running the business in China to be considered and the prices set so as the profitability of the business is guaranteed in the international market. Promotion: availability of local media in China is high providing high quality and having a nationwide media reach and coverage. Minimum government control and affordability are the other benefits of promotion in China. The promotional mix that will be used include radio, television, newspaper, personal selling, publicity, direct mail and internet aimed at ensuring a high access to information by consumers and ability to create a wide coverage on the location and products offered at Topshop retail stores in China. Place/Distribution Strategy: Government requires a license for establishing a presence in the country but it is easily accessible, and the ability of dismissing a channel member under agreement is hard owing to lawsuits and bad reputation that could arise. Intensive distribution will be used to allow the consumers encounter Topshop products in many of the outlets allowing them to have easy access and relate to changes in fashions easily allowing for high sales and access to a high client base in China (Lamb et al., 2008, 337). Concentration is the best targeting strategy allowing Topshop to access a defined group of customers, in this case, women, and aim at effectively meeting their needs including quality, fashionable, and affordable accessories, shoes, and clothes (Lamb et al, 2010, 127). Indirect channels include retailers, use of existing channels, and business-to-business (B2C) e-commerce selected for the ability to meet directly the needs of the consumers and the ability to generate feedback. 3.4 Financial Strategy Variable/Year Year 1 Year 2 Year 3 Units to be sold 7800 12,000 20,000 Unit Price £98 £98 £98 Net sales in China 764,400 1,176,000 1,960,000 CGS 458,640 646,800 980,000 Gross Profit (Loss) 305,760 529200 980,000 Net Profit (Loss) after Tax 229320 396,900 735,000 N.B.: Tax rate is 25% Overhead costs 35% Breakeven Point Variable/Year Year 1 Year 2 Year 3 Percentage Gross Point 0.60 0.55 0.50 BEP Sales 267,540 411,600 686,000 3.5 Exit Strategy and Scenarios The best exit strategy is selling to a joint venture partner from China to allow for the smooth change of operation, prevent losses arising from liquidation, and limit the exit process. There are no many legal issues in case of a sale to a joint venture partner, which is the preferred exit strategy compared to liquidation that involves following set procedures and guidelines for compensation of different stakeholders of the business. 3.6 Conclusion and Recommendations The best strategy for entry into the Chinese market is through a joint venture and the establishment of online sales for the company. The benefits include the lower costs of establishment, better understanding of the local culture and access to a portion of the local market from the partner’s domestic operations (Walter & Murray, 1988, 19). Online sales of the products through the joint venture will allow for access to a large market share and global sale of products. The recommendations include using the joint venture to have a better understanding of the local fashion trend, allow for understanding and solving of government policies regulation and local barriers to trade. The use of new fashion lines, every week will depict the strength of the business allowing for access to new clients and expansion of market share for the business. Operating in Asia, specifically China will also be advantageous to Topshop owing to the close proximity of suppliers and raw materials. SECTION FIVE: About the export strategy, Topshop will open the first and formal store in China according to the performance of the pop-up store. Even though the Asia market has not received much attention by Topshop, Asia cannot be ignored anymore owing to the high potential for the market and the growth of the constituent economies mainly China to global dominance. Thus, Topshop has to attach importance to gather the information on the pop-up store in China. Topshop should master the first-hand information of the performance of pop-up store that will prove important to the success of the business in China. Relevant information includes order dates, sale dates, customer response and fashion data, which are generally detailed, to style, color, texture and possibly price. Regarding the import strategy, the headquarters of Topshop is in London, and the suppliers of Topshop mainly concentrate on Southeast Asia. Reasons include low labor cost in Southeast Asia such as Bengal, Vietnam, and India compared to the labor cost in UK and North America. China operation will deliver a cost effective revenue generation platform owing to close proximity to the suppliers and low labor costs, as well as the high potential of the market. For Topshop, the process of import and export mainly concentrate on one aspect of import. That is to say, the Topshop as a shopkeeper has to purchase the goods from suppliers. The process of purchasing includes seven stages with the most important stage being the negotiation and signing of purchase contracts. Specifically, the seven stages include management of Topshop entailing the building of an organization which is in charge of the whole purchasing process, drawing up a plan of purchasing, identifying the suppliers, negotiating and signing purchase contracts, beginning to produce goods by the contract’s standard, reordering goods, evaluating supplier and making supplier improvement. Generally, on the surface, the Topshop is not responsible for profit tax and customs duties in the process of purchasing goods. The supplier pays profit tax to the government where the supplier is set up allowing Topshop to be the indirect payer owing to its position as a customer of the supplier. The FTAs and preferential trade agreements are beneficial in the reduction of and exemption from customs duty. Topshop should choose the suppliers in the countries, which has the preferential trade agreement or have signed the FTAs with United Kingdom. At present, UK has not signed FTAs with Asian countries, even if UK is going to sign the FTAs with China. The United Kingdom signing of FTAs with China will smooth the operations of Topshop once it starts operating in China and will allow Topshop to access more benefits in terms of customs duty exception of a reduction in excise duty. There are two general methods of payments in the international trade; one is Freight on Board (FOB), and the other is Cost Insurance and Freight (CIF). The difference between FOB and CIF is who will afford the insurance expenses and traffic expenses (Monczka et al., 2008, 560). Choosing CIF, as a payment method for Asia countries including China will be beneficial for Topshop through allowing for reduced carriage risk and ensuring product safety. FOB will form the most appropriate methods of conducting business with nearly countries for the supply of products to Topshop. FOB and CIF Incoterms allow for the easy administration and through international documentation by Topshop it provides an easy method of inclusion in the pricing decisions of the products and services (Tordo et al., 2013, 85). In conclusion, based on analysing Topshop, expanding the company to the Asian market, with specific emphasis on the Chinese market is very worth trying. The benefits to be accrued include access to a fast growing market that has a large market potential that will be responsible for driving the global potential of the business. The achievement of the internationalization strategy in the Asian market has a much bearing and inclination to China’s recent growth and dominance on the global economic front. Success in China will form a platform for more growth, acceptance, and dominance in the Asian market allowing Topshop to have dominance in the Asian market and extend its market share from the United Kingdom stronghold. Success in the Asian market will protect Topshop against regional economic downturns and low growth in Europe, which is its current high revenue generation market. References Arcadia Group. (2015). Arcadia Group Financial Results. Retrieved on April 16, 2015 from https://www.arcadiagroup.co.uk/press-relations/press-releases-1/arcadia-financial-results-2011-2013-2012 BOF Team. (April 14, 2015). Topshop Topman: Creative Innovator. Business of Fashion. Retrieved on April 17, 2015 from http://www.businessoffashion.com/articles/news-analysis/topshop-topman-creative-innovator Lamb, C., Hair, J., & McDaniel, C. (2008). Essentials of marketing. New York, Cengage Learning. Lamb, C., Hair, J., & McDaniel, C. (2012). Mktg. New York, Cengage Learning. Monczka, R., Handfield, R., Giunipero, L., & Patterson, J. (2008). Purchasing and supply chain management. New York, Cengage Learning. Porter, M. E. (2008), On competition, Cambridge, Massachusetts: Harvard University Press. Topshop. (2015). 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