Environmental Audit of the Sainsbury - Essay Example

?ENVIRONMENTAL AUDIT In entering a new market, it is an ordinary strategy for companies to conduct an environmental audit as to conditions that wouldaffect operations of the company. There are three kinds of analysis of determination, first is the PEST analysis, the second is the SWOT analysis and third, is Porters 5 Forces competitive analysis. In the plan of the Sainsbury to enter a new market, it becomes imperative that an analysis using these models be used in the study. 1. First, let us describe how PEST analysis could be used in Sainsbury’s plan to enter Qatar. PEST is an acronym for political, economic, social and technological factors that usually affect the operation of a firm (netMBA). These factors can be both a threat and opportunity for the company. It is a threat because they are beyond control of the company, that the acronym PEST becomes an appropriate term. It becomes an opportunity when the company takes advantage of the environment and it becomes a rearranged word as STEP towards strategies in entering the market. Any company wishing to enter new market should study the macro-environment factors surrounding the country. First consideration is the political analysis that consists of: political stability, legal framework for contract enforcement, trade regulations and tariffs, favored trading partners, anti-trust laws, pricing regulations, taxations – tax rates and incentives, wage legislations, mandatory employee benefits, industry safety regulations and product labeling requirements. The political analysis done for Sainsbury showed following results: Trade restrictions. It will not be difficult for Sainsbury to establish commercial business relations with Qatar because of its existing friendly relationship with U.K. It has an existing Free Trade Agreement that provides benefits to both contracting parties (Pratap, 2011). One of the Qatar’s policies that makes setting up of large industries possible here are the regional integration, trade liberalization and expansion of market volume, thus encouraging mass production and economies of scale. Tax policy. Benefits owing to tax incentives include the following: No income tax or social security deductions payable on wages and salaries. No taxation is payable on exports and customs duties start at 5% Foreign investors are permitted full repatriation of capital and profits overseas in foreign currency. Corporate tax on foreign companies is 10% Source: KMD Consulting Legal. According to SMD (2008), the Foreign Investment Law No. 13 of 2000 offers foreign ownership up to 100% foreign ownership in sectors of agriculture, manufacturing, health, education and tourism. In Feb. 1, 2010, this law has been amended and now includes 100 percent ownership in businesses such as consultancy services, information technology (IT), services related to sports, culture and entertainment as well as distribution services. Minimum capitalization required for a Qatar company is 200,000 QR and contracts entered into by Sainsbury in Qatar are covered by the Qatari Civil Code. Sainsbury can be exempted from the Qatari Law that stipulates a total local equity of 51% in any commercial company because it falls into the category of distribution service engaged in the retail distribution network and this exemption is available upon request (SMD, 2008) Legal. Environment regulations. The current environmental issue that would most likely affect Sainsbury’s entrance to Qatar is its limited natural fresh water resources and its increasing dependence on large-scale desalination process. Political stability. The peace and quiet of a country is vital in determining investment. Qatar, according to Business Monitor International will most likely to remain politically stable as analysts see no threat to al-Thani’s family rule (Business Monitor, 2009) Next, we go to the economic factor. Included in this analysis are: the type of economic system in countries of operation, government intervention in the free market, comparative advantage of host country, infrastructure quality, skill level of workforce, economic growth rate, unemployment rate, and inflation rates. Analysis shows the following: Qatar promises to be a good market for supermarket expansion of Sainsbury. According to the U.S. Dept. of State (2010), Qatar is the wealthiest country in the world in terms of per capita income. Qatar has a per capita income of $67,000 as compared to US’ $39,626. It derives its wealth from the substantial oil and gas reserves. Its exports of power and gas amounts to $64 billion in 2006 and imports $6.7 billion of consumer goods, machinery and food. From among its foreign trade partners, Qatar imports 7.1% from U.K. From this figure, there is a clear possibility that Sainsbury would increase this percentage as the company will bring to its doors food and consumer goods (U.S. Dept. of State, 2010) Third PEST factor is social. This pertains to demographics, class structure, and education, culture such as gender roles, entrepreneurial spirit, attitudes and leisure interests. Shown below is the result of analysis: The population of Qatar as of 2010 is 840,926 and a reported growth rate of 0.869%. The largest bracket of buying population is the age of 16 to 64 male & female which is 76.8% of the population. 77.7% are Muslims, followed by 8.5% Christians and 14% from other denominations (CIA Factbook, 2011). Hiring of employees will not be difficult because of high literacy rate. Fourth factor is technological. This includes recent technological developments, technology’s impact on product offering, impact on cost structure, impact on value chain structure and rate of technological diffusion. Analysis of technological factors pertaining to Sainsbury shows the following: In terms of technology, internet is the most relevant factor to the operations of Sainsbury. PCs and internet have become a way of life in Qatar as households, business and government have access to phone and internet services. Most of Qatar citizens have phones and internet services in their homes. Businesses in Qatar have modernized IT systems, soon enough, it is predicted that in the near future e-commerce will be the pattern for business. The government likewise extensively uses IT systems in its integrated operations so that information is fast and readily available (CIA Factbook) 2. SWOT Analysis. SWOT examines the internal strengths and weaknesses of an organization as well as the external opportunities and threats that it will encounter in entering a new business venture. These factors should be investigated thoroughly in order to make a strategy applicable in the marketing plans. By assessing both the internal and external factors, company can take advantage of its strength; correct its weaknesses, benefit from the opportunities, and put off any threats found. Factors ordinarily investigated internally consist of company culture, image, key staff, access to resources, experience, operational efficiency and capacity, brand awareness, market share, financial resources, exclusive contract and trade secrets (netMBA). In the external analysis, what is important is looking for opportunities that will give the company a chance to enter the new market. External analysis makes the company aware of the threat of competition and changes in the environment that can serve as a barrier in its entry. Changes in the external environment that will most likely affect the company include customers, market trends, suppliers, partners, social changes, new technology, economic environment, and the political and regulatory environment. When the analysis is completed, a SWOT profile is created to be used as used as basis for goal setting, strategy formulation and goal setting. The SWOT profile of Sainsbury, Plc. after analysis is shown below: POSITIVE NEGATIVE INTERNAL STRENGTH Has financing capability to fund expansion from own sources Has management capability due to 125 years of experience in retail management Pioneering activities in product development and use of technology WEAKNESS Production capabilities due to supply problems, rising raw material cost and price war competition Slow in responding to growth and expansion EXTERNAL OPPORTUNITIES Liberalization policies of Qatar Economic development in Qatar Tax incentives Technological savvy of consumers THREAT Tough competition Falling behind TESCO and ASDA Environmental problem with use of water 3. PORTER’S 5 Model of Analysis. This model of analysis is concerned with how the company will compete in the industry. Porter’s model presented a framework on how to determine the weaknesses and strength of the company in facing competition in the industry, determine the potential of new entrants to the industry (QuickMBa). Several factors are also analyzed to know the power of suppliers as well as the power of customers and if there is a threat of substitute products. This model is used in identifying the structure of the industry in order to determine the appropriate corporate strategy that could be applied in its entrance to the industry. Competition in the industry is high as there are top 3 big retail supermarkets that appear as threat to Sainsbury: these are ASDA, TESCO and Win Morrisome Supermarkets (Hoovers) The potential of new entrants to the industry is encouraged by various factors such as government regulations, trade agreements, assets size and economies of scales. Government regulations in Qatar liberalize investment and bilateral agreements are entered into so that there are tariff and tax advantages for new companies entering the country. Supplier’s power is weak and it cannot exercise control over Sainsbury because it has established loyal suppliers in its chain. Besides, there are many competitive suppliers in the industry. The power of customers become strong when there are many suppliers and there is only one buyer, so much so that buyers can dictate the price. The power of customers in Qatar is not concentrated as there are many buyers and many retail stores to choose from. In Porter’s model, the threat of substitutes comes from other products in other industries, and the threat comes when demand for the product is affected by the substitutes. Small shops come close to becoming a threat to supermarkets. Conclusion Setting up of a branch in Qatar is feasible because of the FTA arrangement that liberalizes foreign investment. Qatar has a healthy economy and a high per capita income that could support spending for goods and commodities. Social aspect is a required portion of study because this will involve the buying behavior of consumers, i.e. religion, customs and age bracket buying preferences of target market. People are conscious of technology that could be used for on-line ordering system, website promotions and communications of Sainsbury. The provisions of laws concerning foreign investments are encouraging for foreign nationals. What seems to be a matter of concern are the limited water resources that could be vital for food production. The internal strength of management could support expansion because of its long experience in the business. However, its cautiousness in expansion could be resolved by a thorough study and management preparation for the venture. This will include capitalization and use of human resources. Internal problems such as rising costs of materials are generic problems of all businesses and are also present to others. It is evident that there are existing opportunities that could be used by Sainsbury in Qatar such as those provided by the government. Competition is a natural thing when a market is attractive, but this could be resolved with proper marketing strategies. References Business Monitor. March 2009. Stability through global recession, Middle East & Africa Monitor, Business Monitor . Viewed 10 March 2011 CIA - Central Intelligence Agency, 2011. The World Factbook. Viewed 23 Feb. 2011 Read More