International Business - Essay Example

? A Report on the Strategy Suitable for Reliance Retail to Enter the UAE Retail Segment Summary This report is intended to analyse the strategy suitable for Reliance Retail to enter the UAE retail segment. The main part of the report will give an insight about Reliance Retail, its mission and other information about the company. The size and potentiality of the UAE retail market is discussed in the report. The analysis shows that for entering UAE, FDI is better than licensing, joint venture and strategic alliance. But still the possible risks of FDI shows that Reliance need to employ a proper brand management system in order to be successful in UAE.   Table of Contents   Sl. No. Title Page No. 1 1. Introduction  4 – 5 2 2. Entry Strategy  5 – 10   2.1 Rationale for choosing Indian Market     2.2 Entry Mode     2.3 Advantages of Chosen Strategy     2.3.1 Licensing Vs. FDI     2.3.2 Joint Venture Vs. FDI     2.3.3 Strategic Alliance Vs. FDI     2.4 Possible Risks of Adopting FDI   3 3. Conclusion  10 – 11   Works cited   1. Introduction Market entry is one of the most crucial strategic decisions that every business organization takes. Market entry can either be an entry into a new market within the country or entry into a foreign market. In both the cases, it is very important to have an effective planning regarding the market entry process because it determines the future of the company with regard to success in the new. This report will make a detailed look into the market entry strategy suitable for Reliance Retail, one of the largest retail companies in India, to enter the UAE retail segment. Reliance Fresh is one of the largest retail companies in India. It is founded in the year 2006 and is headed by Mukesh Ambani, the wealthiest person in India. Reliance Fresh is part of Reliance Industries Limited which has interests in petroleum, power, chemicals, textiles, polyesters, telecommunications, polymers, natural gas and petrochemicals. Reliance Fresh had huge success ever since it was established in the year 2006. Reliance fresh currently has a network of more than 560 outlets spread over in India. (Reliance Industries Limited, 2011) Reliance Fresh was placed as a retail company focussed on selling fresh fruits and vegetables and thus named as Reliance Fresh. But recently the company had announced its plan to shift its focus from fruits and vegetables to emerge as a super market or multiband retail store. One reason for this decision is the political and social issues faced by the retailer in many parts of India regarding dearth of vegetables and fruits. Another reason is to rebrand itself as a multi-brand retail store. Therefore, the company is now gradually reducing its exposure of fruits and vegetables in their outlets. As part of the expansion plan, Reliance Fresh is planning to invest around Rs. 25000 crores in the coming years. Reliance retail now operates under several brands namely, Reliance Super, Reliance Footprint, Reliance Timeout, Reliance Jewels, Reliance Wellness, Reliance Mart, and Reliance Digital catering to the specialized needs of consumers. Apart from all these Reliance also operates the brand Reliance IStore which is a specialized store selling only the products of Apple Inc. Reliance Footprint is now one of the largest footwear retailers in the country. The store caters to all the income groups of the society. Reliance Jewels is its jewellery brand and has entered the jewellery market by setting up its stores in major cities of the country. Jewellery business is one of the most promising business segments in India. Similarly Reliance Timeout is now of the largest book store in India. (Reliance Industries Limited, 2010) As of now, Reliance is only confined to the Indian market. It is now time to take the brand to a global market. Expanding retail to a global market is not easier. The main reason is that the global organized retail sector is highly competitive than the Indian retail sector. This report is intended to make an analysis of the best strategy suitable for Reliance Retail to enter the UAE Retail market. 2. Entry Strategy Reliance Retail now requires a global presence to improve its brand name and profitability. The country that is most suitable for Reliance Retail’s expansion is UAE which is one of the fastest growing retail markets in the world. Therefore, UAE is the best place for Reliance Fresh to try its global brand communications. A rationale of UAE and its retail segment can be analysed before deciding on the strategy suitable for Reliance. 2.1 Rationale for choosing UAE Market: “Retail has been one of the fastest growing industries in the UAE for the past few years. Favorable government policy frameworks and active participation of private sector have facilitated one of the world's most desirable retail environments in terms of investments and revenue generation.” (Articlebase. Com, 2010) The two most important driving forces of the retail sector of the region are rising purchasing power and consumer confidence. Even during the periods of economic slowdown in the region, the retail sector has recorded higher growth rate. Another advantage for the UAE market is the higher percentage of Indian population in the region. “It is estimated that about 33% of the total population and over 50% of the work force in the UAE are Indians.” (Embassy of India, 2011) Majority of the Indian population in UAE are from the southern states of India mainly Kerala, Tamil Nadu, and Andhra Pradesh. The total population can be categorized as unskilled workers, skilled workers, professionals and businessmen. Therefore the UAE market offers a consumer segment that is very much similar to that of the Indian market. Therefore, UAE is the best market for Reliance Retail to begin its global expansion. 2.2 Entry mode: It is the decision about the entry mode that determines the success of a company’s expansion into a market. In terms of entry into UAE market it is very much important to have a brand image. This is where Reliance will have an advantage in the UAE market. As majority of the population of UAE are Indians, it can easily fit in the market. The second thing that the company should have is a better distribution network and product varieties. Considering all these, the most suitable strategy for Reliance Retail is Foreign Direct Investment (FDI). UAE government is very much supportive on the FDI policies within the country. (MeyerReumann & Partners, 2010) Apart from oil exploration and sales, banking, real estate, retail and tourism are the biggest industries in UAE. Therefore, an FDI is the most suitable option to make use of the situation. In UAE, Dubai accounts for more than half of the non-oil trades in the country. Dubai expects its FDI flow to increase by 30% in the coming years. “According to AT Kearney's 2010 Foreign Direct Investment Confidence Index, the UAE is seen as the most attractive investment destination in the Middle East in the next three years and ranks 11th worldwide.” (Reuters, 2011) Reliance should give extreme focus on placing Reliance Jewels as a premium jewellery brand in UAE. As UAE is one of the largest consumers of gold, there is an immense market potential available for Reliance to utilize. Reliance should mainly focus on setting up retail outlets in Dubai. 2.3 Advantages of the suggested strategy: The strategy suitable for Reliance Retail to enter UAE market is FDI. Reliance has many other alternative strategies available which are as follows: 1. Licensing or franchising agreement 2. Joint Venture agreement and 3. Strategic alliance agreement All the above strategies are most common in case of a global expansion by a company. The choice depends on what kind of business an organization is involved in. Companies across the world have adopted the above strategies based on their business style and based on the markets they wanted to expand. Now we can look into circumstances under which FDI is better than the above three for entering UAE market. 2.3.1 Licensing vs. FDI: Licensing is one of the most common overseas expansion strategies. Licensing allows the company to expand into a new market without huge investments. This strategy is mostly adopted by single brand retail stores and fast food chains. Licensing is highly practical and successful in such cases. But in the case of a multi-brand retail store, licensing is not a good strategy. The main reason is that huge investment is required to be made in setting up of retail outlets. Moreover, for the distribution network to be effective there should always be a complete attention from the company. (Kersting, 2003) 2.3.2 Joint Venture Vs. FDI: Though joint venture itself is a form of FDI, it differs from that of FDI on certain terms. A joint venture consists of partnering with a local company to form a new venture which will be run by both the companies. A pure form of FDI involves full investment from the expanding company only. Therefore, in terms of a joint venture, Reliance will have to partner with any strong local retailer in UAE. This is where it has the first hurdle. Though UAE has many well known retail companies, almost all the companies are emerging ones. They are not as big to undertake a joint venture activity. The second hurdle Reliance will have is regarding the protection of its brand name. In the case of a joint venture, Reliance will have to enter the market with a local player, thus sharing the brand names of each partner. Therefore, the objective of creating an individual brand name cannot be achieved because of this. Thus FDI is better than joint venture for Reliance. 2.3.3 Strategic alliance Vs. FDI: Strategic alliance is the next option available. It consists of entering into an alliance with any other entity for using the resources and expertise each other’s success. The companies in the alliance still operate at the same brand name. Strategic alliance was successfully been adopted by many companies. But in the case of Reliance it is already well equipped with in the retail sector. A strategic alliance will eventually lead to the emergence of a powerful competitor in the future. However, there is no such risk in terms of FDI. 2.3 Possible risks of FDI: Though FDI is expected to be the most suitable option for entering UAE, there are certain risks that follow its adoption. The first risk of adopting FDI is the possibility of growing debts in the books of the company. Expanding into UAE market involves shelling out a lot of amount. This cannot be achieved without the help of a financial institution. Reliance will have to raise such huge amounts through loans or other modes of debts. There is also another aspect in this. Due to the recent crisis in Dubai, many commercial banks are sitting with a higher percentage of NPA’s due to Dubai World debts. “Uncertainty over the extent of the write-downs on the DW debt will mean banks will be hesitant to start lending again.” (Intelligence Quarterly, 2010) Therefore, fund raising and restriction on loans will be an issue. Another risk associated with this is the high cost of infrastructure in the country. The higher cost of land space will make the expansion slower for the company. The second risk of adopting FDI is the lack of market knowledge. As the suggested strategy is to enter the UAE market without partnering with anyone, Reliance will have to make its own strategies for identifying and adapting to the UAE market. Though majority of the population in UAE are Indians, it also has considerable amount of people from other parts of the world. Therefore, the UAE market is entirely different and dynamic compared to the Indian retail market. Thus, Reliance will have to operate in a different system and strategy at the UAE market. This will be tougher for Reliance as it will not partner with a local player in this case. The third risk is the risk of competition from other major players. There are many retail companies operating in UAE. Most of the established retail companies in UAE are the ones that belong to UAE itself. EMKE Group is one of the largest among them. International retail giants operating in the country share only a meagre market share. Therefore it will be a difficult task for Reliance to penetrate into the market. The established retailers in the country already have a well developed system and brand image. They are also at a very high expansion stage. Thus, the comparative expansion rate of the competitors will be higher than that of Reliance. 3. Conclusion The previous part of the report has clearly made an analysis of the entry strategy suitable for Reliance Retail to enter UAE. Based upon the analysis it can be found that UAE is a very promising and potential market. The main reason for this suggested expansion is the similarity of the market with that of the Indian market. Though the market has a similarity, the fact that it is dynamic and mixed with the cultures of various countries, Reliance will have to focus highly on its branding strategy. In India, it focussed more on penetrating into the market by offering lower prices. However, the strategy should be different in UAE. It should definitely focus on lower prices but major attention should be given for branding. The store format and layout should be entirely different. Ambience of the store is extremely important while operating in UAE market. Moreover, it should offer more varieties of products compared to what is offered in India. Reliance should keep Reliance Jewels apart from other brands under the umbrella. Other sub brands of Reliance retail can be provided under the same mall. Brand name and individuality is the factor that drives the sales of jewellery brand. Thus it should be placed differently. Also, Reliance Jewels should be expanded into more cities. Jewellery business is one of the most promising business segments in the country. Therefore, an entry into UAE market will offer Reliance Retail an international footprint. Works Cited Reliance Retail Limited, 2011. Products and Brands. [Online] Available at: http://www.ril.com/html/business/business_retail.html [Accessed 24 March 2011] Reliance Retail Limited, 2011. Growth through value creation. [Online] Available at: http://www.ril.com/html/business/business_retail.html [Accessed 24 March 2011] Articlebase.com, 2010. UAE Retail Industry to Maintain Dynamic Growth. [Online] Available at: http://www.articlesbase.com/business-articles/uae-retail-industry-to-maintain-dynamic-growth-2532792.html [Accessed 24 March 2011] Embassy of India, 2011. Indian Community in UAE. [Online] Available at: http://www.indembassyuae.org/induae_community.phtml [Accessed 25 March 2011] MeyerReumann & Partners, 2010. Abu Dhabi Economy Policy. [Online] Available at: http://meyer-reumann.com/abu-dhabi-economic-policy-promote-foreign-direct-investment-and-own-non-oil-export/ [Accessed 25 March 2011] Reuters, 2011. Dubai projects 30% jump in FDI. [Online] Available at: http://www.emirates247.com/business/economy-finance/dubai-projects-30-jump-in-fdi-2011-02-15-1.356713 [Accessed 26 March 2011] Erasmus, Kersting. Foreign Direct Investment versus Licensing. [Online] Available at: http://willmann.com/~gerald/fmsem/kersting.pdf [Accessed 26 March 2011] Intelligence Quarterly, 2010. UAE Country Risk Assessment. [Online] Available at: http://www.intelligencequarterly.com/2010/09/uae-country-risk-assessment/ [Accessed 26 March 2011] Read More