Choosing the Retail Sector in Canada - Essay Example

? Retail Sector in Canada of the of the Introduction North American Industry ification System is utilized by the government and the business enterprises for classifying the business establishments based on the type of the economic activity in Canada, United States and Mexico (NAICS, 2013a). NAICS has replaced the previous system i.e. Standard Industrial Classification System. However, various departments like United States Securities and Exchange Commission use the previous system only. NAICS does not provide guidance related to the classification of business enterprises that are composed of multiple establishments. Rationale behind choosing the Retail Sector The study has selected retail sector under NAICS with code 44-45 (NAICS, 2013b). The retail sector is an important sector which covers a wide area of the business in today’s world. The retail trade market accounts for almost 12.4 percent of the total business establishments in United States. The single store businesses are said to account for almost 95 percent of the entire United States retailers. Some of the big retailing companies include Wal-Mart, Zara, Target Corporation, Benetton Group etc. However, this study would be focusing on the retail trade industry in Canada. The study has selected this sector as it covers a wide segment of the business world with huge growth prospects. NAICS Industry Profile: Retail Trade Industry Retail trade is the sale of products and services by the individuals or the businesses to the end users. The retailers include a part of the integrated system known as the supply chain. The retailer buys products or goods from the manufacturers in large quantities either directly or through whole sale and then sells them in small quantities to the customers in order to gain good profit. This industry covers a huge portion of the businesses where retailing can be done in fixed locations by means of stores and markets, or can be delivered to the customers directly. The term retailer is applicable for the service providers as well. These service providers provide services like electric power, public utility and such for many individuals. The industry comprises of small business shops. These shops may be located in the residential streets, different shopping streets or in the shopping malls. Online retailing being one type of electronic commerce which is utilized in the business to consumer transactions i.e. B2C include non-shop retailing. The retailing industry can be said to be one of the most dynamic industries in the world. It is considered as the one of the ever growing businesses catering products and services to the changing needs and demands of the customers. The companies belonging to this particular industry sell the merchandises or products to its consumers from a definite location. Retail industry is the second biggest industry in entire United States in terms of both number of employees and establishments (Research and Markets, 2013). It generates a retail sale of $ 3.8 trillion annually. It also includes the largest sector worldwide. The next part of the project would be conducting the macro environmental analysis of the retail trade industry by means of PESTEL Analysis and Porter’s Five Forces Analysis. PESTEL Analysis The PESTEL Analysis helps in describing an essential framework of different macro environmental factors which are used in the environmental scanning of a particular organization (Pettigrew, Whittington & Thomas, 2006; Lorat, 2009). Political/Legal Canada is a democratic country with one parliamentary government. It consists of three main parts: a) Federal, b) Provisional and c) Municipal (Parliament of Canada, 2012). The government provides huge scope for the retail industry. It facilitates the growth in the industry. The policies on the economy and trading agreements as specified by NAFTA are essential to be followed by the companies operating in this industry (Foreign Affairs, Trade and Development Canada, 2013). The increased limitations in the industry in terms of tariff and other trade restrictions slow down the progress of the industry to certain extent. However, the democratic nature of the government has helped in developing sharp market competition in the industry. Economic Canada holds the position of the tenth largest economy in the whole world. It gets an advantage in the business operations of the companies over its competitors in the retail trade industry. However, the recent recession has increased the unemployment rate in Canada. This has affected the economy and slowed down the progress of the industry. However, it is expected that the global economy will soon recover from the financially distressed situation. Thus the economic environment of Canada supports the retail industry. Socio Cultural The people of Canada lead a fast pace of life where they believe that efficiency is the key to success (Levine & Norenzayan, n. d.). The individuals depend on a great extent on the retail trade industry as it facilitates them in a number of ways. The availability of online retailing has made the business process fast and enhanced its utilization among the consumers. Technology The country relies on the use of internet to great extent (Veenhof, Wellman, Quell & Hogan, 2008). The highest utilization of internet is in British Columbia and Alberta. Retail industry focuses on use of advanced IT technologies for trading. Online retailing has become one of the easiest modes of business operations in the retail industry. Environment The retailing companies provide various attractive discounts in the cases of natural disasters and calamities. However, these offers negatively impact the customers as they get annoyed that the retailers are misusing these events for promoting their own products and services. The government has specified to reduce the paper wastage by the retailers in the industry. Although they have taken initiatives to reduce paper wastage but it did not prove to be highly effective. Porter’s five forces analysis The Porter’s five forces model help in analyzing the business situation. It is a business strategy tool which helps in assessing the attractiveness within an industry (Porter, 1980; 1998). The five forces are classified as given below: Threat of substitutes: Threat of substitutes assesses that how easily can a customer switch to the competitor’s products or services. The retailers deal with a large variety of products. It is due to this reason that shifting from one product to its substitute becomes very easy. Thus the threat of substitutes is very high (Alkhafaji, 2003). The second hand stores and the thrift stores act as active substitutes for the retail companies. However, they might appear unappealing to the affluent customers giving high importance to the brand name. Threat of new entrants: The new entry of any competitor in the market weakens the power of the existing business enterprises in the industry. It enhances the competition in the market. As there are a large number of big players in the retail industry, the chances of entry of a new entrant are low. Moreover the entry barrier is high. Thus the threat of new entrant is low. However, there is threat of entrant from some significant players like TESCO. The company has already planned to open a store in the United States. It believes that the consumers appreciate its brand name and capability of offering lower prices yet earning high profits. This is possessing threat to the existing companies such as Target, Walmart etc. Rivalry from the existing firms: This force assesses the intensity of competition between all the existing firms in the industry. There is cut throat competition among the retailers in this industry. The industry is growing rapidly which is stimulating the competition even further. Thus the rivalry among the existing forms is very high (David, 1986). Let us consider an example- Target Corporation is solely a domestic organization. Walmart is almost six times the size of Target Corporation. This provides an advantage to Walmart of higher economies of scale. However, both provide differentiated products in the commodities sector. Bargaining power of the suppliers: This force assesses the positional strength of the suppliers in an industry. The switching cost is not very high because of which the retailers have high chances to switch from one supplier to another. Thus the bargaining power of suppliers is low. Reduction in the import barriers has increased the global competition among the suppliers thereby benefitting the retailing companies. The low bargaining power of the suppliers has facilitated the retailing companies to maintain the prices low. This can be counted among their advantages. Bargaining power of the buyers: Bargaining power of the buyers assesses the amount of control that the customers possess in driving down the product price in an industry. The product offerings by the retailing companies in the retail industry are highly differentiated. The main focus of these retailers is to maintain good relationship with the customers by satisfying them with quality products (Davis, 2008). Thus the bargaining power of the buyers is low. This facilitates companies like Walmart, Target Corporations etc in maintain long term relationship with their loyal customers and attracting more customers by means of differentiation. Each of the retail companies has their own differentiation strategy which separates them from the others. Conclusion There have been a number of issues found from the PESTEL and Five Forces Analysis. The retailers should reduce their reliance on the import of goods. They should advance the technology in order to facilitate the individuals with innovative products and services. They should reduce paper wastage and focus on implementing CSR policies for meeting up the environmental, social and economic responsibilities. They should make attempts in providing differentiated products in order to achieve competitive advantage in the market. The retailers should manufacture new products and increase the number of merchandise for reducing the increased threat of substitutes. References Alkhafaji, A. F. (2003). Strategic management: Formulation, implementation, and control in a dynamic environment. 21st ed. London: Routledge. David, F. R. (1986). Fundamentals of strategic management. Columbus: Merrill Pub. Co. Davis, J. R. (2008). Does environmental scanning by systems integration firms improve their business development performance? Michigan: ProQuest. Lorat, N., 2009. Market audit and analysis. Berlin: GRIN Verlag. NAICS. (2013a). Introduction to NAICS. Retrieved from http://www.census.gov/eos/www/naics/ NAICS. (2013b). North American Industry Classification System (NAICS) Canada 2012. Retrieved from http://www23.statcan.gc.ca/imdb/p3VD.pl?Function=getVDPage1&TVD=118464 Pettigrew, A. M., Whittington, R., & Thomas, H. (2006). Handbook of Strategy and Management. Thousand Oaks, California: SAGE Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York City: Simon and Schuster. Porter, M. E. (1998). Competitive advantage: Creating and sustaining superior performance. New York: Simon and Schuster. Research and Markets. (2013). Retail industry in United States - Porter’s five forces strategy analysis. Retrieved from http://www.researchandmarkets.com/reports/585621/retail_industry_in_united_states_porters_five Parliament of Canada. (2012). The Parliament of Canada - Democracy in action. Retrieved from http://www.parl.gc.ca/about/parliament/publications/democracyinaction/democracy-e.asp Foreign Affairs, Trade and Development Canada. (2013). Report from the Trilateral Working Group on Textiles and Apparel to the NAFTA Free Trade Commission March 7th, 2005. Retrieved from http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/nafta-alena/textile_report.aspx?lang=en Levine, R. V., & Norenzayan, A. (n. d.). The pace of life in 31 countries. Retrieved from http://www2.psych.ubc.ca/~anlab/Manuscripts/Levine&Norenzayan%20POL.pdf Veenhof, B., Wellman, B., Quell, C., & Hogan, B. (2008). How Canadians’ use of the internet affects social life and civic participation. Retrieved from http://homes.chass.utoronto.ca/~wellman/publications/stats_can/statscan.pdf Read More