How to Operate Successfully in an International Environment - Toys R Us - Case Study Example

Type the company name] How to Operate Successfully in an International Environment [Type the document subtitle] Type your name 5/25/2013 Executive Summary This assignment deals with a case study of how Toy R Us has scope to further enlarge its market base by entering into the Asian market. It highlights the major challenges which the organisation may face to operate successfully in an international environment. It also highlights the steps the management needs to take to make its operation achieve success in an international environment. Special importance has been given to problems like credit access, governmental rules and regulations, ethical dilemmas, cost cutting techniques, CSR, emerging markets, competitors move etc which is prominent in an international environment and achieving those shall definitely help an organisation sustain success in an international environment. In addition to it emphasis has been given on developing a process which will help the organization to use the different resources in the most effective manner and will prove as an important guidelines based on which the performance will improve. The analysis of the different factors will provide a useful guideline which will guide the management and others to continue in their efforts of developing the required parameters through which better services can be rendered. This will thereby impact the performance of Toys R Us and provide an opportunity to deliver superior performance over a longer period of time. Introduction In today’s business environment, conditions keep changing constantly and risks is always on a higher note in every organisation’s agenda. Changing business invites new risks and an organisation in order to mitigate those risks and achieve success with sustainable development needs to continuously anticipate threats and respond accordingly as per the changing environmental conditions. In this vast competitive working environment organisation in order to boost up profits and capture a higher market share organisation’s plans to expand their business and go internationally. However the main issue lies is to how to operate successfully in the international environment. This assignment deals with a case study where Toy R Us which has achieved success in its international expansions in the European market still has ample scope to tap the untapped Asian market. The assignment also deals with the challenges that it might face to achieve success in the international environment and how it needs to operate its business in the international environment to achieve success and focusing on its strategic problems which it needs to encounter. Brief about the Company Toys R Us as the name suggests deals in various kinds of toys for different age groups with different variants ranging from wooden toys to electronic toys. The company was founded in the year 1948with its headquarters in Wayne, New Jersey, United States. With an earning of above $500 million and revenue in excess of $8 billion the company has successfully different brands under its name like Kids R Us, Babies R Us, and Toys R Us International etc (Company Profile, 2013). Toys R Us operates above 870 stores in United States alone and above 625 international stores covering around 35 countries of the world. Its international expansion can be dated back to 1984 for which it established a separate unit under its name of Toys R Us International by opening its first wholly owned store in Canada. The company tasted success in its international expansion and soon covered countries like Australia, Canada, Germany, Netherlands, Spain, United Kingdom and other European countries. It also has its presence in the Asian market particularly in Japan however, there is still ample scope to cover the Asian countries like India, China, Bangladesh, Pakistan etc. International sales now account for nearly 25 percent of the revenue of the company and the company is definitely looking to higher the same (Company Profile, 2013). Owing to the fast technological changes the company has also launched its own portals and websites to provide a convenient shopping experience to its customers and also has recently decided to provide its own exclusive mobile application to further increase its sales. It is to be noted that that even though the company has achieved success in its international business still there are many issues which needs to be highlighted and focused to make complete control over its operation in the international environment. Operating in an International Environment As already discussed Toys R Us had set up a benchmark in the international market of toys, however the company in its recent past owing to certain major issues and problem of decentralization had led to slowdown of the expansion strategy globally and as per reports the company in its recent past had made no announcements of further international expansion. The company has huge market for its products in the Asian market and management should definitely take this opportunity to capture the Asian markets before their competitors in order to skim the profits so available in the Asian Toy Market. Why should Companies Expand Globally Toys R Us has done well in its expansion strategy of European market however, conditions differ greatly when it comes to the Asian markets, the company should consider a SWOT analysis to find out the threats and opportunities that exists in the Asian market. Its presence in Japan is a boon to the company as it knows the conditions of Asian market to some extent. It is high time to tap the Asian markets as the company and its products are already in a maturity stage of the product life cycle in its existing m0arkets further its competitors have already made a move in the Asian market to capture the initial market share (Devereux and Sutherland, 2009). Toys R Us should try to make a complete study of the Chinese market and try to locate its new manufacturing unit in China as the country is highly equipped with raw materials and labor facility is found at ease with lesser legal and governmental compliances. However, Chinese toys had already covered a large portion of the Asian market and these local products will definitely add to the competitor list apart from the larger toy making giants. Here is list of issues which the company should study minutely in order to operate successfully in an international environment and capture a larger market share with higher returns and make its presence felt strongly in the international environment. Regulation & Compliance Regulations and compliance has been the most important risk in an international environment as this varies considerably with different governments in different countries. This is definitely a more serious issue than credit crunch. New taxes and higher capital requirement invites higher risks and impose a competitive advantage to other financial market players and constrain an organisations ability to meet its social and economic needs and allows an organisation to become the ultimate holder of risk (Devereux and Sutherland, 2009). An organisation in order to mitigate this regulatory and compliance risks needs to comply different taxation and other governmental laws and try to enter into tax treaties with the governmental bodies in order to comply with the same. Credit Access Credit access is always a prime importance to sustain ones development and expansion and further operate in an international environment. An organisation requires funds to expand and operate smoothly. Government backings or implicit government backing from different countries in which the business operates helps to overcome this issue to a considerable extent (Norton and More, 2002). However, proper care and interest terms should be justifiable to avoid the skyrocketing governmental debts in the company’s capital structure. The real challenge here is how to raise and optimize the capital structure to build on a sustainable organisation. Slow Recovery or Double Dip Depression In the last decade a serious threat in international market is the risk of recession, when an organisation operates in a single or its domestic country this risk is much lower as it can make strategies as per the situation demands. However, to achieve success in an international market this factor plays an important role (Norton and More, 2002). This is a macro risk still the organizations can mitigate this risk by ensuing strong risk management controls and taking a proactive approach. Flexible cash management and liquid assets can act as an effective tool to fight against the same in an international environment. Managing Talent & Creating an Ethical Workplace An organisation in order to succeed in an international environment requires talented managing and ethical leaders. Ethics play an important role in the international level as well as non compliance or unethical means can lead to complete shutdown of the company’s outlets in its operating country. The organisation needs to find such talent and also sustain its existing managing leaders. Toys R Us can be easily lured to low cost products which might prove to be fatal and unethical on its part by providing the Asian markets with low cost toxic products. The company in order to achieve success should rather concentrate on providing quality products at best value for its products and try to eliminate any ethical dilemma which prevails in a particular industry. Emerging Markets This factor is of prime importance in international environment. An organisation in order to capture a larger market share should try to continuously indulge itself in finding out opportunities for any emerging markets in its field of operation. It is to be noted that while emerging markets today seems more stable than the developed markets there is also higher political risks evolving out of the same which is an area of serious concern in order to achieve success in an international environment. Toys R Us can definitely consider Asian market as an emerging market however, Chinese companies may increasingly seem to change from an export-based model to offshore operation which is again an opportunity for Toys R Us to build its manufacturing unit in China and tap the Asian market. Cost Cutting In order to sustain in an international environment and achieve excellence cost-cutting acts as an effective tool, however care should be taken to maintain the quality of the products. Toys R Us can definitely use the abundance raw material available in the Asian market to lower its cost structure and provide its quality products to the Asian market to swipe off the domestic market competitors (Norton and More, 2002). An organisation in order to operate in an international market has to always keep an eye on the commodity price inflation and develop strategies accordingly to provide best quality products at lowest possible prices. Hedging can prove to be an effective tool to fight against the same. Radical Greening Environmental regulation, consumer demand of the products and strategic responses remains a pressing problem to operate successfully in an international environment. While some organisations are helping to shape governmental policy in this issues gain a competitive advantage others face this issue as a serious problem in the day to day operation. Toys R Us has to get its products quality checked from the governmental departments and face huge problems in certain products which are approved by government of one company and rejected by the other. Thus, restricting the supply of that product and incur losses. Organisations certainly need to prepare themselves for the carbon trading schemes in order to make its products viable in the international market. Risk of Social Acceptance & Corporate Social Responsibility Social acceptance and Corporate Social Responsibility depends firmly on organisation and governmental agendas. It covers a larger area of risk in the international environment as it involves reputation of the business, transparency in its operation and accountability to different governmental bodies in different countries. Trust of public in the company plays an important role here. Companies need to take into consideration the viewpoints of public rather than dismissing them and try to work to better inform the public through its transparent operations and Public Relations. Competitors Move Toys R Us has to constantly use its strategic decision in order gain competitive advantage over its competitors. A good advice will be set up franchise system in the Asian Market in order to have a strict control over the same and lower its capital funding for the same. It is be noted that huge giants in the toys industry has already started their operation to capture the Asian market and it would be beneficial for the company to enter into a Joint Ventures with certain local Chinese Toy manufactures in order to start up the process of international expansion at a rapid pace. Further agreements with companies like Wal-Marts and other retail chain with exclusive counters of Toys R Us will help in making its presence felt in the Asian markets. FDI & Other Governmental Policy An organisation in order to achieve success in international market should definitely look upon this issue as a serious area of concern. FDI might prove a boon to Toys R Us to have a direct entry into the Asian markets of China, India, and Bangladesh etc. It is to be noted that recently Indian government has opened FDI in its retail sector with certain clause. Governmental and industrial policy plays an important role as non compliance of the same may lead to retrieval of the company from the country and lead to huge losses (Schmitz, 2010). Thus we see that in order to operate successfully in international market the above mentioned points plays an important role. If an organisation can come over such major issues it can definitely taste success in the international environment. Managing this issues require pro active planning and making feasible strategic decisions taking into consideration both internal and external factors including factors which have an international effect. Analysis Toys R Us had been successful in its international operation and expansion of the European market but conditions may vary in the Asian Market and it should definitely look upon the same with serious concern and endeavor and accept to cover the Asian market as the most challenging job. Management needs to carefully think on the above mentioned points and make a pro active plan to taste success in the Asian market and international environment as a whole (Fiet, 2005). It should learn from its past mistake in opening a store in Denmark where the company had to face fierce Union Opposition and had to eventually stop its expansion strategy in Sweden. Asian countries like India, Pakistan etc has always been criticized for its Union problems and in no sense can the company ignore such issues. Management firstly needs to conduct a study of current demand of the products offered by Toys R Us in the Asian markets and make a suitable agreement with the Chinese government to open a manufacturing unit in China. Managers should try to proceed in a step by step way to ensure proper control and analyze its working and proceedings on a daily basis. Managers should try to look into the following mentioned steps: NEGOTIATING ENVIRONMENT: It should focus on a negotiating environment. Everything from food to language differences and conflicting business styles can make negations difficult. Managers should either try to negotiate business terms with the local industries and governmental bodies on a contractual or relationship terms. A combination of both is usually most admired. A win- win situation is always beneficial for long run success. CULTURAL ISSUES: At no cost should the culture of the common people be hurt as it could cause immense damage to the reputation of the company and may also invite huge governmental and other regulations and problems in its operating style. It is most important to match with the cultural requirements of the local consumers. RISK LEVEL: Again it is a top managerial decision making of the amount of risk the organisation is capable of taking to operate in the international environment. Concept of high risk high return is universal truth. However, when it comes to international environment an excessive amount of risk taking may invite unnecessary problems for the company (Sorensen, Bent and Yosha, 2001). Management has to make important strategic decision with regards to risk taking both financially and socially taking into consideration the international risk which is an added area of concern when working in an international environment. FOREIGN BUREAUCRACIES: In many countries there are predefined ways of doing business which are extremely difficult and dangerous at times. Silent partners, commission , joint ventures , gratuities etc are a necessity in certain countries and failing on same makes the business potentially illegal (Fiet, 2005). It is always advice able to have a knowledgeable advisor to deal with these issues minutely. INSATABLE RELATIONSHIP: It is to be noted that Joint Ventures are not meant to be permanent relationship. Strategies, business interest, business environments all change with time. In addition Joint Ventures are often managed by both the partners that may create a situation which is untenable in the long run business (Fiet, 2005). Thus it is an area of concern and must be approached with caution with a team of knowledgeable advisors both domestically and internationally. Thus we see that it all depends on management and its decisions in order to mitigate the international risks and operate successfully in an international environment. Further, problems in a particular industry may differ from problems in other industry. It is only a real time experience in the international environment that can give the real challenges to the management and one can then judge the managerial efficiency of the same. However the above mentioned list is all not exhaustive but it shall definitely help managers to come over certain major issues and problems which are usually prominent in an international environment (Fiet, 2005). To operate successfully in an international environment is definitely a challenging task. Toys R Us has done well in tasting success in the European market and can use its managerial skills and strategies to achieve success in the Asian market as well. Recommendations Toys R Us has ample scope to further enlarge its market share by covering the untapped Asian Markets, its competitors had already shown signs of making a market base in the Asian Market and it’s a challenging job for the management of Toys R Us to make it presence felt in the Asian market and particularly in the international environment. The company should make a complete SWOT analysis of the Asian markets and figure out its internal strengths to take opportunity of the available market. A pro active planning will be of great advantage for the same. It should try to build on a franchise system rather than opening its own wholly owned exclusive markets to lower the capital requirement and further mitigate risk to a considerable extent in an international environment. The organisation had tasted success in the European markets and it should learn from its previous mistakes in Denmark as Asian market is much more complicated in terms of Unions Opposition, tax structure, labor and environmental law and cultural issues. To achieve success in an international market it is important to take steps in a sequential manner with regular follow-ups of its task completed and make pro active planning taking into consideration the international risks involved in the same. Compliance with governmental regulations and entering into a win-win situation with the same will further accelerate the process References Company Profile. 2013. Toys R Us. Retrieved on May 28, 2013 from http://www.toysrus.com/shop/index.jsp?categoryId=2255956 Devereux, B. and Sutherland, A. 2009. A portfolio model of capital ows to emerging markets, Journal of Development Economics, 89, 181-193 Fiet, J. 2005. Risk avoidance strategies in venture capital markets. Journal of Management Studies, 32(4), 290-313 Norton, W. and More, W. 2002. Entrepreneurial Risk: Have we Been Asking the Wrong Question? Small Business Economics, 18, 281-287 Sorensen, W., Bent, L. and Yosha, V. 2001. Output uctuations and _scal policy: US state and local governments 1978-1994, European Economic Review, 45, 1271-1310 Schmitz, M. 2010. Financial markets and international risk sharing, Open Economies Review, 21, 413-431 Read More