Managing New International Business Structure - Essay Example

? Second assignment Topshop Contents Contents 2 Managing New International Business Structure 3 African Retail Industry 3 Managing the international distribution network 4 Managing the international organizational structure 8 Functional Structure 8 Divisional Structure 9 Worldwide Area Division 10 Managing the Product Mix 11 References 13 Managing New International Business Structure While managing the new international Business structure of Topshop, the very recent entry of the company into the continent of Africa, or South Africa, to be more precise, can be considered. Such circumstances have been hypothetically considered, keeping the growth potential and attractiveness of the South-African retail market in mind. It has also been considered that Topshop is most likely to use South Africa as the central base of expansion strategy on the African continent. In the context of the present study, it needs to be mentioned that while analyzing the overall international business structure, the key business issues required to operate a business in the international market have been considered, which include marketing, logistics, organisational structure and communication. However, even before describing the proposed international business structure, it is important to provide a brief insight about market trend of the behaviour exhibited by the African consumers (Burgemeister, 2003, p. 192). African Retail Industry The launch of Topshop stores in Johannesburg and Durban shows the degree of attractiveness of the South African retail market. In the year 2011, The African Development Bank and AFDB provided a report that described the middle class of the country as those people having daily consumption of US$2-20 per day. Industrialists, however, wish to think differently. Mr. Mncane Mthunzi, the executive director of Massmart, believes that companies should not focus too much on the so-called definition of the African middle class. According to Mthunzi, as per the retailers, the disposable income should be decided by the fact whether the people coming to retail store have the money to buy the designated product or not. According to experts, the fact that the sub-Saharan Africa does not have modern retail outlets or major shopping malls does not imply the fact that the south-African consumers do not have the purchasing power. Experts believe that South African customers can be categorised as wealthy or upper class, rising or higher middle class and also rural customers. Analysts actually believe that the major retailers including global as well as local firms should actually focus on the rising middle class segment (Churchill, 2009, p.211). This is a group that is becoming more judicious in the consumer behaviour. Such groups are looking for quality branded products. Analysts also added that this is the trend that can be seen throughout the continent. However, as compared to other African neighbours, South Africa has shown rapid growth in the retail segment. The country has been able to get over the aftershocks of 2008 economic slump. In 2012, the country saw an economic growth of 2.6%. The retail sales have increased by 3.9%. The consumer spending has increased by $4,291 per capita. Managing the international distribution network One of the major decisions that a company has to make while aiming at internationalisation is managing the overall channel and distribution. One of the key elements of the distribution strategy is to decide upon the market entry strategy. There are various modes of entry that a company can choose, including joint ventures, strategic alliances, acquisitions, green-field strategy and franchising. While making the market entry decision into a foreign country, one of the key factors to be considered is the risk factor. In the context of this, it is to be mentioned that despite of growth potential, the African retail industry can be tagged as a virgin market. Also the disposable income of the people of Africa may not be as high as other European and North American nations since the African economy is not a matured one. Hence, the risk factor seemed relatively high. Therefore, the retailer should adopt franchising strategy. This would help the company monitor the market and use the distribution channel of the franchise partners at a relatively lower risk. As a matter, this precisely has been the strategy followed by the company. In 2012, Topshop partnered with Cape Town based boutique unknown union and opened a pop-up store in order to monitor the market conditions, consumer taste and preferences and demand. However, the pilot strategy happened to be quite encouraging, and Topshop decided to enter the country formally (Czinzota et al., 2009, pp. 423-429) Very recently, Topshop provided franchising rights to leading South African clothing and accessories retailers House of Busby and Edcon. This helped the company open a flagship shop in Sandton City, Johannesburg followed by another one in Durban. Reports suggest that the company may have plans to open another store in Cape Town. However, as of now, the company is using the newly opened 950 m2 in Johannesburg as the flagship store. Therefore, it is quite clear that Topshop will look to use this store as the hub and build more stores in and around the city across the country. Experts believe that this move is likely to provide strategic leverage to the retail major as Edcon is ranked among the top clothing retailers in the country; Edcon has more than one thousand stores in South Africa, Namibia, Botswana, Lesotho, and Swaziland. The seemingly strong distribution network will help Topshop expand significantly the market in Africa. The footprint and the scale of Edgar help the shop in shop concept to reach out quickly. Edcon is an established brand name in Africa; hence, it would help Topshop to attract consumers and deliver value. As far as the overall supply-chain is concerned, the company would look to ship in the products to South Africa (Henry, 2008, p. 89). Although it is not clear whether the company would use South Africa as the base in order to expand the reach across Africa or not, experts actually recommend it is the probable way to go. Add to that the economic and retail growth, increased per capita consumer spending and strong distribution network of Franchise partners Econ and House of Busby suggest that using South Africa as the base country could do the trick. As of now, the company should focus upon developing a strong distribution network across South Africa by using the hub and spoke model. The Johannesburg store could be used as a hub and several clusters of stores could be built around the stores to maximise the reach. The same hub and spoke model can also be used by Topshop in order to expand market reach outside South Africa. Once the company builds up a strong distribution network in South Africa and strengthens the relationships with the channel partners, the company may decide to use the existing marketing channels of the franchise partners to expand the reach. The company may also look to find franchise partners in other countries like Kenya, Namibia or Botswana, but it is not suggested at this nascent stage as it may increase the horizon of risk and may cause added cost and time (Kolb, 2008, p. 92). Add to that, Edcon already has a strong distribution network across the African continent; hence, the company should utilise that to the fullest extent and enter countries in which Edcon is already present. One biggest challenge, however, that my cause hindrance to the expansion activities of the company outside South Africa could be the poor infrastructure. Due to the poor infrastructure transportation costs are likely to be 50% higher in Africa. However, things are changing as the respective governments have taken initiatives to improve the overall infrastructures. For example, the Lamu port project of Kenya has been initiated to increase the regional trade potential of Kenya by bringing together a range of the improved infrastructural developments. This is of great significance as Kenya is a key strategic location in the East of Africa. Managing the international organizational structure In order to describe the organisational structure from an international perspective, two key parameters need to be considered: foreign sales and foreign product diversity. The different structures between the axes shows different alternative models than can be used by the company. Functional Structure The entry of Topshop into Africa is at very nascent stage. At this point of time, the company is providing a limited range of product to the consumers. And although at this point of time the company is operating through franchise partners only, it can only be assumed that future success may lead the company to have an office in Johannesburg. Also, with the rise in sales and demand may lead to the need of delegation (Brown, 2009, p. 209). Therefore, the sudden requirements may lead to new and complex challenges to the managers. Such challenges can be overcome efficiently by following a functional organisational structure. Also, this would help the managers in work delegation. As the company has opened a flagship store in Johannesburg, it can be assumed that the company may open a new office in that city and apply a functional organisational structure to monitor the overall operations in the country. Divisional Structure However, as the business within the country of South Africa grows, the company may start to provide a wider range of products. This may lead to a lot more complexity caused by increased product diversity, and hence, simple functional structure may not work. Hence, in order to satisfy consumer and organisational needs, the company may have to shift focus from functions to divisions. In this case, Topshop may have to open a few more offices in other major cities of South Africa and apply a divisional organisational structure. Worldwide Area Division Now, once Topshop develops a strong distribution network in the rainbow country, the company may decide to expand the market reach to other African countries. Gaining this may force the company to change the modus operandi due to possible increase in customer demand. Hence, Topshop may adopt worldwide area division structure. By following this structure, the company may have to divide different target market countries into different geographical sections. The headquarters, which is likely to be located in South Africa, would have control over other business operations in different countries. Each geographical division would be autonomous and would have little contact with others. The key business areas, such as sales and marketing, R&D, human resource and finance, would keep the own value. But the headquarters located in Johannesburg would have control over the finances. This structure is a great example of de-centralised structure. In such a structure, the decision making is not restricted to the top management, and it is widespread across the units. This will also be in alignment with the hub and spoke model discussed earlier. Managing the Product Mix Another key factor that the company has to deal with is managing the product mix. As mentioned before, the people of Africa, South Arica in particular (due to economic growth and rise in consumer spending per capita), are looking for quality branded products. This is mainly because the present market does not have a huge retail chain consisting of major retailers. The ideal choice of target market segment for Topshop should be rising or higher middle class along with the upper class. It is quite obvious that the people of South Africa would like to buy products that are being offered by Topshop through the retail outlets in U.K. So, the company should make sure that the consumers get the desired quality product. As a matter of fact, Topshop has already made an announcement that the products ranges would be directly aligned with offerings at the stores of U.K. Initially, the company would be providing the products from the AW12 collection launched in London. A part from this, the company also looks to provide additional benefits to the incoming customers through enhanced store experience. This may include store ambience, lighting, merchandising as well as friendly service by provided by the store staffs (Kotler, 2001, p. 25). References Czinzota, M., Ronkainen, I., Moffett, M., Marinova, S. & Marinov, M. 2009. International business (European edition). John Wiley: UK. Henry, A. 2008. Understanding Strategic Management. Oxford University Press: UK. Kolb, B. 2008. Marketing Research: A Practical Approach. Sage: UK. Brown, L. 2009. Marketing and Distribution Research. Ronald Press Company: US. Kotler, P. 2001. Marketing Management. Prentice Hall: UK. Burgemeister, S. 2003. Market analysis. GRIN Verlag: DE. Churchill, G. 2009. Marketing Research. Cengage Learning: UK. Read More