John Lewis Company - Case Study Example

Introduction

Companies expand into the international market to expand their customer base and gain profits. However, the expansion may be met by challenges that may result from cultural changes and business environment that might plunge the company into losses. Therefore, business firms need to conduct PEST analysis of the country they would like to venture into thus making informed decisions and planning to cushion it from instances of cultural shock. The report aims to look at the SWOT analysis of John Lewis Company in the UK and the PEST analysis of Saudi Arabia. The success of the firm is determined by the political, economic, technological, and social factors of the business environment.

Background of John Lewis

John Lewis was established in 1864. Since its inception as a drapery store, the brand has grown to be a leading departmental store with over 88, 700 employees and 45 retail stores around the United Kingdom. It boasts as the only English brand which focuses on practicality, quality, and value for money (John 2012). For instance, the company is involved in selling household goods, clothing, food, and drinks. It has also diversified into insurance and other financial services such as credit cards. The enterprise also has a unique management system in which the staff members are deemed to be shareholders thus bestowing direct link of the team to the function of the business. In 2015, the gross sales of the company experienced growth from Euro 10.2bn in 2014 to Euro 10.9 inclusive of the VAT thus an increase in the operating profit of the enterprise.

SWOT ANALYSIS

Strengths

• Since 2001, the earnings of John Lewis have been growing steadily. Therefore, as at the financial year which ended 2015, it had a strong cash position; an indication of economic growth in a decade.

• John Lewis has a highly qualified team of management. The team has worked around in the last ten years to reverse the fortunes of the firm.

• The John Lewis enterprise uses an aggressive marketing system. For instance, it uses celebrities as brand ambassador thus marketing the brand which positively impacts on the sales (Doyle 2012).

• It also enjoys a strong brand which embodies practicality and qualities which promote the value for money thus enhancing customer loyalty.

• John Lewis also has a broad range of products and strong online presence which promotes sales.

Weaknesses

• Due to increasing market competition, John Lewis has resorted to cutting its product prices. In trying to keep up with the ever-increasing competition, it leads to the devaluation of the brand.

• The price and earnings ratio of the company are low compared to that its competitors. For instance, the price/earnings ratio is used to indicate investor assurance in the enterprise.

• Recently, John Lewis Company has been criticized for stimulating allegations concerning corporate governance, poor management leading to incompetence, and lack of transparency in the company which resulted in outrage among the investors.

• It has also experienced a recent slump in profits. In spite of retailers underperforming, its underperformance in the money markets was more exposed than the other companies.

• The firm also lacks business experience in the international market thus making it difficult for its expansion into the international market.

Opportunities

• The changes in the ways of living have led to the adoption and diversification to healthy lives. It provides a potential opportunity to John Lewis to diversify into selling healthy food supplements and sports gear to the customers.

• Technological advancement has relatively increased online marketing and sales. Therefore, it presents an opportunity for John Lewis to tap into online sales because the margins of the online market are relatively higher because the online marketing and sales have experienced growth from companies such as eBay (The Economist 2012).

• The idea of John Lewis expansion to the Asian markets presents potential opportunities for the company in creating a larger customer base.

• The insurance and credit card industry has experienced tremendous growth. Over the past decade, its growth has been characterized by an upward trend (The Economist 2012). For instance, John Lewis contributes over 23% of its revenues to the segment thus stands to reap the benefits by the full utilization of the opportunity.

• The company can also reap the benefits of the international markets by forming partnerships with international global brands

• Also, it can venture into new product development by designing trendier clothing which would be able to catch the attention of the young population and other potential clients to its stores.

Threats

• The target group of the company is mainly the older customers ranging over 45 years. It poses a risk for the future success of the company since the current population of 20 to 30 years will remain trendy in the past ten years (Nugent and Hawkes 2012). Therefore, the may be reluctant to shop in its stores since technology has increased people’s desire to look trendy and feel a little bit younger.

• The company’s poor governance might result in reduced revenues and interest margins which accrue from the business of cash equity. The decline of the margins might reduce the confidence of the customers in the firms’ ability to meet its commitments of finance (Nugent and Hawkes 2012). The decrease in returns is also an indicator of the company’s inability to deploy its resources to ventures that are profitable.

• The entrance of new competitors in the market with stronger competitive advantage also poses a threat to the firm. Also, expansion into new markets may be met by cultural difference and new legislations which might affect the business adversely.

PEST analysis of Saudi Arabia

The macroeconomic environment is one of the biggest considerations for any company looking to expand its operations into the international market. The factors that define the macroeconomic environment of a particular country include the government policies, the Foreign Direct Investment policies, and demographic changes. The factors help a company to determine the type and period of investments.

Political Analysis

The political system of Saudi Arabia has remained unchanged since its inception in 1932. The regime of governance imposes restrictions to the media activities and is intolerant of the opposition. Concerning the regional politics, Saudi Arabia has a strong influence in the Middle East.

Current Strengths

It has a stable government and policies. It arises because the country is ruled by the members that come from the same dynasty thus political stability and policies which are not affected by radical changes. Also, the country has experienced improvements in the process of legislation facilitated by the establishment of a central government. For instance, the Central Council which is nominated by the King plays a significant role in advising the country concerning general policy formulation which promotes business activities.

Saudi Arabia lacks a democratic set up due to the imposition of restrictions on the media, the political parties, and even on the freedom of expression. It also faces poor implementation of the regulation that is essential in shaping the business environment. The country also faces future security risks due to its location. For instance, it located in oil reserves thus being a potential target for the radical Islamists. The challenges hinder the operation of businesses.

Economic Analysis

Since 2003, the economy of Saudi Arabia has grown at a relatively constant rate of approximately 5 percent. The government has also diversified into economic initiatives such as the development telecommunication, oil, petrochemicals, and power. It has also eased the foreign investment policies with the objective of increasing the FDI (Looney 1990). For example, some of the problems facing the country’s economy comprise of inflation, unemployment, and the possibility of the decline in the prices of oil.

Current strengths

The county has strong government finances and stable growth of GDP. In the recent past, the country has experienced growth and performance in all the sectors of the economy. It also enjoys a positive trade balance with other nations thus an increment of its current account balance to about 24.5 GDP percentages (Ballool 1981). Therefore the revenues accrued from oil have strengthened the financial situation of the country reducing the fiscal balance to about 15 to 20 percent of the GDP. The income has also helped in shaping the economic situation by reducing the government debt to about 19 percent as at 2007 which in turn has created a suitable environment for business operation.

However, Saudi Arabia still faces challenges due to unemployment. The education sector in the country has remained underdeveloped in spite of the growth in the economy. Therefore, it has led to the lack of qualified skills among the learners to succeed and provide value to the business environment (Smith and Larry 2013). As at 2007, the unemployment rate in Saudi Arabia stood at 26 percent which impacts negatively to businesses since the workforce available is unskilled.

In future, the county is focusing on increasing the investments in infrastructures such as petrochemicals, oil and gas, and even the transportation sector. The government is also looking at promoting partnerships between the private and the public sector.

However, it also faces future risks of global economic slowdown due to the possible decline in the prices of oil. Also, the inflationary factors would weaken the Saudi Arabian Currency (Tuncalp 1998). There is also a risk of reduced reliance on the Saudi Arabian Oil by Western Countries due to the discovery of other unconventional sources thus reducing the revenues accrued from the sale of oil. The slowdown in the economy might cause the companies to slump into losses.

Social Analysis

The living standards in Saudi Arabia are low due to conservativeness among its population when compared to other developed countries. Regarding HDI (Human Development Index), it has also been ranked low in comparison to other nations that have the same GDP. The healthcare facilities in this region are also inadequate thus require investments that would facilitate upgrade.

Current strengths

The country has a comprehensive system of social security with schemes such as house loans to citizens, aid to the poor, old age pension, and small town and cities social development projects. It also enjoys the advantage of having a population that mainly consists of the young people hence availability of an energetic workforce that would promote business growth.

However, the social challenges facing Saudi Arabia result from the cases of income inequalities and low HDI rank. The inequalities in income distribution may lead to unrest among the population. Concerning the HDI index, Saudi Arabia is ranked low regarding the Gender Development Index and HDI which impact negatively on the environment of business.

The prospects in this field would include government reforms that would aim to improve the quality of life. For instance, the government would focus on initiatives that would promote eradication of poverty, improve healthcare, and education among the women. On the other hand, some of the social risks that Saudi Arabia might face in future include the explosion of the population and restrictive immigration policies.

Technological Analysis

The government of Saudi Arabia has policies favorable for investments in R&D which have been boosted by corporate tax laws. The technology in Saudi Arabia enjoys a strong financial position which promotes its development. However, it faces challenges since the current investments in technological training, and R&D is low (Al-Gahtani 2003). Also, there is lack investment in higher education learning centers and technical institutions thus reducing the workforce in the country that is versed with technological education.

However, there are prospects to grow focus on R&D and promote the implementation of policies that ensure a suitable business environment. Some of the initiatives that would be undertaken include technological infrastructure investment, development of industrial cities, and enhancing integrated medical research and service zones.

The implementation of the policies might also be faced with future risks since Saudi Arabia lacks in policy and law implementation. For instance, poor implementation of the IPR (Intellectual Property Rights) would inhibit growth in the innovation field thus hampering technological advancement which promoted business and economic growth.

Conclusion

Expansion of business into international platforms requires detailed PEST analysis of the country before its entry. It enables the company to plan and budget since they are aware of the political, economic, social, and technological factors that dictate the business environment in a particular country. Also, analysis of the internal factors of the business is essential in decision making and long-term business planning. It enables the business to identify its strengths, weakness, threats, and opportunities which might be harnessed to increase the profit margin of the company.

Reference list

Al-Gahtani, S.S., 2003. Computer technology adoption in Saudi Arabia: Correlates of perceived innovation attributes. Information Technology for Development, 10(1), pp.57-69.

Ballool, M. M., 1981. Economic Analysis of the Long-Term Planning Investment Strategies for the Oil Surplus Funds in Saudi Arabia: An Optimal Control Approach.

Doyle, P., 2012. Marketing Management and Strategy 3d ed., Pearson Education.

John, L., 2012. John Lewis Annual report 2011. www.johnlewis.com

Looney, R. E., 1990. Economic Development in Saudi Arabia: Consequences of the Oil Price Decline. Greenwich, Conn: Jai Press

Nugent, H., and Hawkes, S., 2012. George follows Jeremy Paxman as John Lewis faces another brief challenge. 20 March 2012. www.timesonline.co.uk

Smith, Larry, and ʻAbd al-Raḥmān, M. A., 2013, Higher Education in Saudi Arabia: Achievements, Challenges and Opportunities.

The Economist., 2012, The world in figures: industries. The world in 2012. pp.124-126

Tuncalp, S., 1988, The marketing research scene in Saudi Arabia. European Journal of Marketing, 22(5), pp.15-22.