Top Shop Ltd - Internationalization - Case Study Example

Top Shop Ltd – Internationalization Top Shop Ltd – Internationalization Top Shop is a global organization with headquarters in Britain that deals with the retail of fashion clothing. It also retails items such as shoes, various accessories (for example, jewelry) and make up (Core, 2009). Top Shop has gradually grown to be one of the most popular stores on a global scale and have gained recognition as a place where fashion and finesse is acquired. Its presence spreads across 33 countries and has over 400 stores in those locations (Core, 2009). It has also spread its reach into the online domain and they offer their products in a number of markets through this manner (Core, 2009). Top Shop was founded in 1964 as a youth fashion brand and has since grown to international scales from its original location in Sheffield, Britain (Core, 2009). It is now fraction of the Arcadia Group that is run by Sir Philip Green, a billionaire business who also owns a several other brands such as Dorothy Perkins and Burton (Core, 2009). The retail chain of outlets has grown to global recognition which has seen the interest of other big investors such as Leonard Green and Partners, a private equity group that is based in the United States who recently bought a 25% stake in the organization for a considerable amount of money (Core, 2009). Top Shop is one of the organizations that can be said to have performed considerably well in the market as a result of the internationalization process. Internationalization refers to the process whereby enterprises proceed to enhance their involvement within the international market and can be recognized by the entry of these enterprises/businesses into new regions/countries that they had previously not occupied (DePalma, 2004). It has become quite a popular practice with organizations that are intent on having a global reach of the market and there are a number of theories that have risen over time in a bid to explain the reason behind this process and why it is seen as a step forward for ambitious organizations. Some of these theories include: Absolute cost advantage This theory is based on the argument that in order for a company to be successful, it should specialize in commodities where the company had an absolute advantage in terms of business transactions. This meant that the organization needed to study the potential of the commodity based on the advantage that they would have while trading it within the market (Susman, 2007). This theory also had an effect on the import and export sector as well as it stated that a company should ensure that it exported items where it had absolute advantage in terms of manufacturing (that is, it was able to produce the product at a lesser cost per unit as compared to the partner that they were trading with) while it should only import items where it had an absolute disadvantage (that is, the cost per unit was higher as compared to the partner that they were trading with). In order for this to work, a relationship required to be formed with organizations from other countries as the cost per unit in the production of various items was different region to region and thus they were able to benefit from one another (DePalma, 2004). As a result the process of internationalization was born where organizations’ spread their wings and were able to penetrate foreign markets as a result of having an absolute advantage in the production of one product as compared to those already present with an absolute disadvantage. Using this theory, it can be said that the process of internationalization occurs from an organizations wish to achieve what can be referred to as gains from trade (or profits) or minimize the potential losses that may incur if they choose to maintain their functions within the region. However, it should be noted that it is not exactly necessary for one to have an absolute advantage in order to achieve gains from trade although it is a promising way of ensuring that an organization will be able to make a sumptuous profit from the business that they engage in. Comparative cost advantage This theory does not exactly contradict the initial theory of Absolute cost advantage but attempts to argue that it is not the only way for a company to achieve success from the process of internationalization. This theory promotes the concept of mutual benefit when dealing with organizations or markets from foreign regions (DePalma, 2004). That is, the process of internationalization can arise as a result of two markets or organizations being in a position where they can both equally benefit from doing business with one another. In this case neither side has an absolute advantage or absolute disadvantage in terms of dealing with commodity that they are trading. This occurs in situations where the two countries can both be considered to have a relative advantage in terms of production. This means that the amount of labor that was used in the production of the two commodities that were being traded was different for both countries (that is, each country required less or more labor to produce the commodity that they were trading in). Thus as a result, both countries would be able to benefit from trading these commodities in question as it would mean that are able to get it at a lower cost than they would have had they decided to produce it in their own country. As a result both countries enjoy a mutual benefit from the particular commodity that they are trading with leading to a comparative advantage for both parties involved. This is different from absolute advantage as the first theory arises from factors such as a higher efficiency in production or the need for less labor in the manufacturing process of the commodity whereas comparative advantage is a situation where the ratio of labor that is involved with in the two items being traded simply differ between the two countries (DePalma, 2004). This second theory simply attempts to attain a sort of level playing field for both parties involved thus it cannot be said that one side has an extreme advantage over the other although their joining forces in order to trade will prove beneficial to all who are involved. In relation to Top Shop, it can be said that both these theories could have been used to explain the reason behind the start of their internationalization. As it is a retail store, it can be said that the absolute advantage was achieved when it was cheaper to set up shop in a particular region where for example a fashion designer may be based as compared to having the clothes imported while in terms of comparative advantage one can argue that the setting up of shops in neighboring countries led to a mutual beneficial arrangement where the retail outlets could easily import and export commodities that they needed from one another and happened to be present in that country. There are a number of theories that can be said to have been used by Top Shop Ltd in their internationalization process which has brought them success in their endeavors, some of these theories include; Diamond Model This model was developed by an individual called Michael Porter and it can be used to explain the reasons behind why some industries become competitive in certain locations as compared with others. According to this model, there are 6 factors involved that may lead to an increase in competition within an industry in a certain area. In order for this increase to take place, these 6 factors must interact with one another in a manner that brings about the desired results (Krugman, 2006). These factors namely are: Factor conditions This refers to the various conditions that are present in the environment within which the organization is operating or where the industry is based. There are a number of factors that must be present in every industry in order for it to come to life and without them the industry cannot survive. These factors are may defer depending on the industry that one is dealing with but one point remains, without these factors an organization will have a hard time achieving the success that they had initially set out to attain for themselves (Ingham, 2004). It is for this reason that every company that plans on setting up shop first examines the location they have chosen to determine whether the factors that are needed for the business to thrive are present before they commence setting down their roots. A good example can be used with the company Top Shop Ltd in mind, before the company can set up a retail store it first has to examine whether the surroundings are conducive to the items that they have to offer. This can include issues such as whether the location they have chosen for their retail store is well occupied allowing for a potential of year round consumers or whether they are too few people in that region to consider setting up a major retail outlet. Without considering these factors, a company may go bankrupt as a result of bad decision making. Demand conditions This has to do with the amount of demand for the product that is being offered by the organization. The existence of demand or the potential of it is very essential to any business that is hoping to achieve success (DePalma, 2004). An area with no demand will lead to losses incurred through the lack of trade meaning that the company will have to bare the burden of the costs they incurred to provide their commodities in the market. A potential market refers to an area where demand might not exist because the product is not present in the market as of yet but once it is made available there is a potential of demand for it coming to birth as well. A good example can be illustrated through the use of Top Shop Ltd once more, the type of clothes that the retail outlets of the company sell will depend on the region that the outlets are based in and the type of clothes that the market prefers. For example, one cannot sell revealing clothes in a region that has a predominantly Islamic culture as they will not get any buyers due to the beliefs and practices of a majority of the people thus the demand for the commodity that one is planning to sell must be carefully considered. Related and supporting industries The number of related as well the supporting industries must be considered as well as both are important in the potential success that an organization will be able to achieve. Related industries will need to be considered so as to gauge the level of competition that is already present in the market (Ingham, 2004). This is an essential factor in any business especially one that may be an upcoming one as competing with companies that have already established themselves within the region can prove to be quite difficult especially when the company in question is relatively unknown (Susman, 2007). With regard to supporting industries, they are essential as one will need them in order to ensure that their own commodity is able to attract a sufficient amount of appeal with the target market. Supporting industries refer to the industries who though they may not necessarily deal in the same product, the commodity they produce is essential to the use of the commodity that the organization is dealing with. Supporting industries work on a mutually beneficial basis (Ingham, 2004). This can be exhibited in Top Shop Ltd as with regard to related industries one has to ensure that the competition will outshine the organization when it is entering a new market and a sufficient strategy is in place on how deal with it. Supporting industries may refer to industries such as fashion (for example, fashion shows, runways and the like) as well as the media as they are needed for marketing purposes. Firm strategy, structure and rivalry The strategy that a firm uses is important as it will determine whether the business will achieve success or fail in the end. It is essential to ensure that the strategy chosen fits the particular industry and scenario that an organization is dealing with. The structure of the firm will also determine success based on the solidarity of the organization as a weakly structured firm will not be able to function or operate cohesively leading to confusion within the ranks that will lead to a drop of performance from without (Ingham, 2004). The poor structure of a firm can be referred to as organizational suicide and may lead to the incurrence of huge amount of losses or worse. Firm rivalry has to do with the presence of other firms present in the market that are dealing in the same commodity. This will result in a rivalry between the two groups as they fight to take control of a major portion of the market. This is exhibited in Top Shop Ltd whereby a solid firm strategy and structure is required to ensure that every part of the organization is smoothly run no matter the region while rivalry arises from the other multinational chains as well as local shops that are present in the region and dealing in the same commodity. Government – The government is always a factor that has to be taken into consideration as they are responsible for the various legislations that may affect the operations of the company (Krugman, 2006). Chance – Every business has a level of risk involved thus when a company chooses to enter a particular market they do so taking a chance that their calculations are correct and that they will be successful in their endeavor (Krugman, 2006). Eclectic paradigm This model advocates for a number of advantages to be present in order to make the process of internationalization a worthwhile one. First off, there should be an ownership advantage which will deal with issues such as trademark and return to scale. The Top Shop trademark is what makes the commodities they offer sell as it has built a brand for itself that is able to attract consumers within the market, this in turn leads to a positive return to scale resulting in profits that are enjoyed by the organization. Secondly, there should be a locational advantage which deals with issues such as the presence of raw materials, availability of affordable labor and favorable legislative laws (Susman, 2007). Top Shop doesn’t deal with raw materials but they ensure that labor (that is, potential employees) is easily available wherever they set up and the laws governing that region do not leave them at a disadvantage in their operations. Thirdly there should be an internalization advantage which refers to issues such as partnership arrangements and joint ventures. For example Top Shop may decide to allow the use of their name in a retail clothes store that has already set up in return for a share of the profits which will negate the need for funds to buy or lease property to set up their own shop or look for consumers as the shop will have already handled all of these issues. A good location that holds potential for the expansion of the Top Shop brand is in Kenya, Africa. The organization can do this through a number of ways with the best being direct investment as the cost of real estate is generally affordable and the laws are friendly to foreign investors. There is also a good market available for the commodities that they are selling and by setting up shop in this country it is able to gain easier access to the neighboring regions with Kenya being the business hub of East Africa thus increasing the potential for more expansion in the future. References Core, K. 2009. New Top Shop bucks trend. Liverpool Echo. DePalma, D. A. 2004. Business Without Borders: A Strategic Guide to Global Marketing, Globa Vista Press, Sao Paulo. Ingham, B. 2004. International economics: a European focus, Pearson Education, New Jersey. Krugman, P. Wells, R. 2006. Economics, Worth Publishers, New York. Susman, G. I. (2007). Small and Medium-sized Enterprises and the Global Economy. Welch & Luostarinen, 1988, Edward Elgar Publishing, Cheltenham. Read More