The current internationalisation policy with respect to global strategy theories - Essay Example

? International Management Inserts His/Her Inserts Grade Inserts (18, March, Introduction In today’s business environment it has become extremely difficult to operate without expanding in different markets. Internationalisation is vital for organisations who want to grow exponentially. Also local markets get saturated quickly and therefore sometimes internationalisation is the only way to sustain business. Although there are many advantages of going global it is not that easy to do so. The case of Marks and Spencer is a good example because the company failed massively in its internationalisation strategy (Jackson & Sparks, 2005). There were a number of reasons why the company could not achieve success in the international market and these will be discussed in light of different models of internalisation. In this paper we will also assess the current internationalisation policy with respect to global strategy theories. We will also provide a list of recommendations that may contribute to the success of the global strategy of Marks and Spencer. Marks and Spencer Past Internationalisation Efforts Marks and Spencer started its operation back in the 19th century with a stall on Kirkgate market in Leeds (Guardian, 2008). The company targeted clients with above average income and provided high quality garments. The company also sells luxury food items. It was the first retailer in Britain to achieve 1 Billion pound pre tax income (BBC, 1998). The company operates in different countries today but its market share is not as it was before. The company’s internationalisation process failed drastically which made the company lose its clients. The international operations of Marks and Spencer were contributing a mere 1.25% to the pre tax income of the whole firm by 2000 (Burt, 2002). This shows how Marks and Spencer failed drastically in going global. Marks and Spencer started its formal internationalisation through acquisition in Canada in1973 (Alon, 2000). Therefore Marks and Spencer was not new to internationalisation in 2000 but still the company did this bad. International sales consisted of 25% of company’s retail floor but still its contribution to company profits was negligible (Burt, 2002). This is clear evidence of the failure of internalisation of the company. The company used different modes of entry ranging from acquisition to franchising. Mostly Marks and Spencer attempted to establish its own stores abroad through acquisition but franchising was also used in countries with less population (Burt, 2002). The policy of controlling everything on its own is deeply engrained in the culture of the company as managers usually like to do something by themselves. This is why acquisition were mainly preferred for both food products and clothing line while franchising was used when market was too small to start operations directly. The main problem of the company was its strict bureaucratic culture. This culture hindered the flow of innovative ideas within the company as senior management was not interested in newer ideas (Case Study Marks and Spencer, 2011). This is what led to the downfall of the company both in the international arena and in UK. The company wanted to grow but its growth strategy was based on traditional mindset of acquisition. They thought they could continue to grow like before if they persisted using their same old business strategy but while doing so they ignored competition and changing business environment. Research suggests that bureaucratic culture lowers innovation and performance of firms (Homburg & Pflesser, 2000). This is one of the reasons why internationalisation went bad for Marks and Spencer. There was also lack of vision when it came to internationalisation within the company. They focused too much on daily activities without taking into account the long term direction the company should take (Case Study Marks and Spencer, 2011). This also had an adverse effect on the global performance of the company because it was important to think long term and position rightly in the foreign markets but this did not happen and the company suffered as a result. We can also attempt to understand how the company went wrong using different theories of internationalisation. The Uppsala model of internationalisation explains different stages through which a company goes global. The model explains that firms go through four different stages of internationalisation. First firms only sporadically export to foreign countries then they export through third party firms regularly, after that they come up with foreign subsidiaries and finally they start producing abroad (Johnson & Vahlne, 1990). Also the model suggests that firms go first in countries that are similar to the culture of their home country. According to this model Marks and Spencer started its internationalisation process correctly but it did not move to countries that had similar demand environment. Some suggest that the company tried to operate in foreign countries in a similar way as they operated in their home country which led to their failure in global markets (Case Study Marks and Spencer, 2011). The network model of internalisation identifies four stages of internationalisation namely early starter, late starter, the lonely starter, and international among others (Johanson & Mattsson, 1988). This model explains the process of internationalisation vis-a-vis the position of the firm within the network of firms abroad. By building network in the foreign market firms can achieve success in global markets. According to this model Marks and Spencer is the lonely starter which means that company is committed to go global but is inexperienced in developing networks abroad. This is another reason why Marks and Spencer failed in global markets. The transaction cost approach talks about how the company should choose between licensing or going in the foreign market using equity (Teece, 1985). The choice according to this approach is based on the lowest transaction cost. If transaction cost is higher through licensing then it should be avoided. Similarly if transaction cost is higher in direct equity investment then licensing should be preferred. From this model Marks and Spencer took the wrong choice as it decided to invest directly even when the transaction cost was high. This is why the profits from international operations are negligible compared to the overall income of the firm. The company did not take into account all the costs that it will incur while investing directly in the foreign markets. Now we will talk about the current internationalisation strategy of the company. Marks and Spencer decided to redesign its internationalisation strategy after its failure and here we will critically assess its current strategy. Assessment of Marks and Spencer Current Strategy After the massive failure of the company’s internationalisation strategy the company sought to restructure its strategy. The company has first announced to rebuild its own brand by coming up with ‘Only at M & A’ branding strategy (Grieson, 2010). This means that instead of sub brands, the overall brand of the company will be marketed. With this the company is trying to attract customers through the brand value of the name Marks and Spencer that has attracted customers over the past many years. But it should be kept in mind that this kind of branding might not do wonders in a similar fashion as it did previously. Customer response is almost impossible to predict and therefore this change may or may not work for the company. There is no reason to believe that strategy that has worked previously will work again. Also the company is currently not accepting that it needs an overhaul rather it feels that only ‘minor surgery’ is required (Pratley, 2010). This means that a change in overall strategy of the company both globally and locally is expected to change greatly in future. This might mean that the company feels it only needs to reposition itself better in the global market. But the problem is that the market of the company both locally and abroad is mainly consistent of higher age group people because they can afford the prices of the company. This is something to worry about because in future this target market might not exist. Therefore assuming that only small changes are required may not be the right approach by the company. The company is currently planning to make its international sales grow to 1 billion pounds in 2014 (O’Reilly, 2011). For this the company plans to grow internationally in different countries especially China and India as they are the hottest emerging markets in the world (Gaved, 2010). This expansion plan is good and competitive but it is important to understand the nature of markets in India and China. Previously the company failed to understand international market dimensions and failed. This time around they will have to custom made strategies to fit the local structure of market in order to succeed. The current strategy of the company is to grow via franchising instead of making equity investments (Felsted, 2010). This is surely a good move by the company since it is important to keep in mind the local customer preferences. It is vital that the company uses the experiences of previously established firms to enter in the new markets. This will allow the company to make better decision and therefore this is a good step. Franchising also lowers the cost of the entering in a foreign country therefore this might be perfect for Marks and Spencer. Another very important thing that the company has to worry about is standardisation. According to Mellahi et al, (2005) a company must standardise only its core functions while formulating a global strategy. The company is currently trying to copy paste its strategy and clothing in the international arena which might not be a good idea since the company has to innovate and use customer centric information. Global strategy theories call for standardisation but only on a limited scale. It is not possible for the company to work efficiently if it attempts to use the same business and operational strategy all over the world. The company is also planning to close and relocate its store. This is a good step because there is no point in running stores that are not earning revenues for the firm. Stores should be relocated so that customers can easily access the new stores and can buy with ease. Stores should also be located in the best location where customers are present in majority. This will lead to saving unnecessary costs which is another dimension of global strategy. When thinking of global strategy it is important to develop strategies that are suiting the foreign markets. Cost leadership strategy or differentiation strategy both might work in different countries therefore it is important for the firm to become fixated with only one strategy. A company can also develop a focused low cost strategy at the subsidiary level (Mellahi et al, 2005). This strategy might work for the company in China and India where customers prefer lower costs. It is not essential to use similar strategy all over the world. The company is now relying on its franchise and is slowly giving them control too which is a positive sign. International alliances are also important part of global strategy theories. It is important to consider international alliances when cost of setting up business from scratch is too high (Mellahi et al, 2005). This is something which the company is currently doing in its new strategy. It is thinking of making international strategic alliances with companies all over the world so that they can achieve success and save costs as well. It is always not possible to control everything and the company has learnt the hard way and therefore this move is positive. Also there needs to be a cultural fit when it comes to international alliances (Mellahi et al, 2005). When making alliances there should be similarities between the companies in the alliance otherwise they do not work effectively. Previously the company has suffered due to the problems it faced from the differences between itself and its partners. The company did not know what it was buying and therefore internationalisation went bad. This time around the company is treading on a more cautious path by slowly making inroads in foreign markets and choosing partners more carefully. Recommendations Marks and Spencer should conduct thorough market research when it comes to going into global markets. Market research is considered extremely vital in the internationalisation process (Cavusgil, 1984). The company has always lost because its strategy did not take into account the structure of markets in foreign countries. Any strategy will not be successful if it does not take into account market dynamics of the local market. M&A should first conduct through analysis before entering the market and then should try to engage in foreign markets. With market research company get an idea about pricing and its marketing strategy that will work in the new country. This is why market research is something essential for any firm going global. Through market surveys the company can also take a look into its competitors which may help the company position its products better. Marks and Spencer has always faced problems in positioning its brand in the market and therefore market research is essential. Through market research target markets which are previously not targeted by any competitor may come up and this can be extremely lucrative for the company. This is another reason why market research is important for Marks and Spencer. The company can get better returns abroad if research is conducted thoroughly. Establishing networks in the foreign market can be beneficial for a company that is looking to expand globally (Blomstermo & Sharma, 2003). Marks and Spencer should try to develop networks in the foreign market before starting operations. This can help the company operate freely as it will not have to rely on its usual partners. A small example can be of its garments. If a supplier quotes higher prices then the company can easily contact another supplier who is giving lower prices. But this is only possible if the local networks of the company are strong enough. Culture is another important factor that should be considered. Cultural differences can seriously hurt the internationalisation process of a firm (Burt, 2006). It is therefore extremely important that the company first concentrate on countries that have a similar culture to UK. This will help the company understand the market better and will allow it to earn profitable returns. It is also important to expand in China and India, but focus should also be on markets that are culturally similar to UK. There is still a lot of potential that can be targeted in the European markets. Also the company should expand in markets that are less uncertain because of its recent internationalisation failures. Uncertain market conditions can hurt the company financially in its internationalisation (Melin, 2007). The company should markets that are less uncertain also because then the returns can be guaranteed. The company is currently entering India and China so it should focus on the market that is less uncertain. Less uncertain markets are those where returns are relatively guaranteed and where market conditions are not subject to too much change in the short term. Stable market conditions can give a new firm a breather in the new country. Conclusion Marks and Spencer has failed significantly in internationalisation because of its culture, short term strategy, lack of differentiation and innovation, and lack if franchising. The cost of foreign operations was too much but still the company was not willing to let go of the control. The current strategy calls for franchising which is a better alternative. Also countries like China and India have been identified as emerging markets and they are being targeted. Branding strategy has also changed. The company should conduct thorough market research and should choose countries that are culturally similar and less uncertain when it comes to expanding operations internationally. Bibliography Alon, I. 2000. Marks and Spencer: A Case Study in International Retailing. Accessed on 18 March 2012, < http://www.elearning.ulg.ac.be/old_demos/HEC/html/marks.pdf> Blomstermo, A. & Sharma, D. 2003. The internationalization process of Born Global: a network view. International Business Review, 12(6): 739-753 Burt, S. 1993. Temporal trends in the internationalization of British retailing. 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