Environmental Issues of Marks and Spencer in Egypt - Case Study Example

Environmental Analysis of Marks and Spencer in Egypt Table of Contents Introduction to Company 2 Country Analysis 3 Industry Analysis 4 Porter’s FiveForces Model 5 Bargaining Power of Buyers 5 Bargaining Power of Suppliers 6 Threat of Substitutes 6 Threats of New Entrants 6 Intensity of Rivalry 6 External Environment Analysis 7 Political Environment 7 Economic Environment 7 Social Environment 8 Technological Environment 8 Legal Environment 9 Environment 9 Competitor Analysis 11 Customer Analysis 12 12 SWOT Analysis 14 Recommendations 15 Bibliography 16 Introduction to Company In this report, the expansion of Marks and Spencer has been studied and by conducting the situation analysis of Egypt, this report aims to determine whether Egyptian market is suitable for Marks and Spencer or not. Marks and Spencer is one of the major British Retailers and dealing in Clothing, furniture, Food & Wine and shoes businesses. However, this report aims to evaluate the suitability of Egyptian market for Marks and Spencer to start clothing business. Therefore, the focus of this report will be only limited to clothing line of the company. Moreover, the focus on clothing line is because of the increasing textile business opportunities in Egypt and it will get clearer after the situation analysis. Country Analysis Egypt is one of the growing economies of the world. The total population of Egypt is 83.1 million (Table). The GDP growth rate in the table shows that in 2009 when most of the other world economies were trying to come out of recession, the GDP of Egypt was 4.7 percent. The following table shows the major imports, exports and other economic information about Egypt. Source: Retrieved from Country Risk Research by Colijn A detailed analysis on the external environment of Egypt will be done in the External Environmental Analysis section. Industry Analysis Apparel industry of Egypt is one of the largest and oldest industries in the region. The textile industry of Egypt was developed around in 500 BC (SEAM Project). Until First World War, the textile industry had created a strong name in the region by importing latest technology and machines from developed states and all of this happened because of the industrialisation efforts under the regime of Muhammad Ali in the 19th century (Kjeilen). According to the Furnex Egypt Report (2010), the textile industry of Egypt contributes to 16.3 percent in GDP, 24.5 percent in total GDP, attracts $8 billion through FDI, provides 30 percent employment and comprises of 4491 companies. Today many of the companies operating in Egypt Textile industry are of international level. Many western and foreign brands have established their outlets because of the easy access to resources, technology and cheap labour. Still it is being argued that more weaving, spinning and dyeing machineries are required because of the increasing number of companies. Many of the Apparel companies are exporting their products to U.S., Europe and many other countries and their products’ demand is also increasing in the international market. One of the major reasons because of which international companies are showing their interest in Egypt’s apparel business and other textile sectors is the unsaturated Egyptian market. Moreover, perceptual mapping has been done to analyse the perception of Egyptians about various local and international companies. Although M&S has no outlet in Egypt however, because of the international recognition, M&S has developed high quality and high price perception. Perception Mapping Porter’s Five Forces Model In order to determine the attractiveness of Egyptian Apparel industry, Porter’s Five Forces Model has been used. Bargaining Power of Buyers In Egyptian Apparel Industry, the bargaining power of buyers is significantly higher because of various reasons. First, buyers are huge in number and usually have options to select from. Second, there are a number of suppliers available in the market. Third, because of the low wages the product prices are not very much high in Egypt therefore, buyers earn low profits. Third, along with the quality, the major priority for the Egyptians is price when it comes to buy products. Bargaining Power of Suppliers Bargaining power of suppliers is low in Egyptian Apparel market because of various reasons. First, there are above 4000 companies operating in Textile industry as mentioned earlier and most of them are operating in Apparel sector. Second, the products manufactured by these Apparel companies are not very unique and they require the same material which can be taken from any supplier. Third, the switching cost is very low and forward and backward integration is very much possible. Threat of Substitutes Threat of substitutes is significantly higher because of the higher willingness of Egyptian consumers to substitutes based on price and performance. Secondly, low switching cost also makes substitution easier. Threats of New Entrants Although there are no legislative barriers for the new companies to enter into Apparel Industry of Egypt however, entry barriers largely depend on the scale at which the company is being launched. For a multinational company, there are significant barriers to entry because of capital requirements in production, access to distribution channels and build a distinct image and brand identity. Intensity of Rivalry The intensity of competitiveness is increasing in Egyptian Apparel industry because of the increasing number of companies and significantly higher market growth. The degree of differentiation is average and neither higher nor lower. Moreover, there are no exist barriers for the companies operating at small level but significant exist barriers for the companies operating at large scale who have made huge technological investments. External Environment Analysis Political Environment Apparently Egypt political environment appears to be stable however, there is a huge potential for growing political volatility and sudden discontinuations in the short term for about six to eighteen weeks. Moreover, there are two possibilities which can happen as a result of political instability in Egypt; first, intervention of military as a result of contested succession; second, Islamist push for political power (Cook, 2009). In Egypt, government is active in making legislative improvements to increase the ease of doing business however because of the poor enforcement and corrupt commercial court system, the institutional effectiveness is constrained (Colijn, 2010). Egypt has established strong foreign relationships with the Arab countries and other countries of the world. After the visit of Obama, U.S. and Egyptian Officials have signed agreements to increase trade and investment between Egypt and U.S. Therefore, apparently it seems that political atmosphere in Egypt could create risks for Marks & Spencer however, the risk-averse nature of Egyptian politicians, good political relations of Egypt, political stability and peaceful environment in the past and a potential of only short term political instability can be considered optimistic for Marks & Spencer in Egypt. Economic Environment Economic reforms are being encouraged in Egypt however, they lack the support because these reforms are perceived to be the major cause of the increasing gap between rich and poor (Alisa, 2007). To attract more foreign direct investment and to improve GDP growth, aggressive economic changes have been seen during 2004-2008. The global financial crisis has slowed down the GDP growth of Egypt to 4.7 percent in 2009 especially hurting the export sectors of the economy such as textiles however, the reform efforts like fiscal stimulus programmes kept GDP growth from falling further (Colijn, 2010). The GDP of Egypt is an indicator of the growing economy of Egypt and the reduction in customs duties has further boosted the Egyptian market for foreign investments. Moreover, business procedures have been modernised, corporate and personal taxes have been cut and states assets are being transferred to private sector (EENI). Social Environment Egypt is a Muslim country and culture of Egypt is very different from western economies however, major brands are opening their outlets in Egypt which have changed the living style of youngsters to a great extent. In 1990 Kirpalani highlighted the opinions of Ikram (1980) and Elits (1982). Ikram argued that increasing conservatism in Egypt is a result of the increasing contact of Egypt with the oil exporting economies whereas; Elits argued that western products in Egypt are entitled as imperialism of values. A significant chunk of population of Egypt is below 15 years of age and according to the statistics of 2002, 34 percent of population was below 15 years (Earthtrends, 20003). In addition, the family structures are very strong in Egypt and the decisions of the children are highly influenced by their parents until their marriages. The youngsters in Egypt might be influenced by the western based advertisements however; such appeals might not be very effective to attract the huge population of Egypt. Technological Environment The technological developments and infrastructure developments in Egypt are increasing. The number of internet users is increasing in Egypt as compared to the other regions of North America. The regional manager of North Africa Google, Wael Fakharany argued that Google is happy as the number of internet users in Egypt is increasing and since 2004, the internet users have grown by 20 percent (Coq, 2010). All industries in Egypt are using innovative and latest imported technology. In textile industry, highly developed and new technological methods are being used. However, there is a need to invest more in technological so that more investors could be attracted. Legal Environment To attract investors, the current legislative framework of Egypt has been improved and businesses are growing because of the flexible legislative framework. Egypt State and Information Service provides information on the detailed legislative framework of the country. According to Egypt State and Information Service, the apparel companies in Egypt can enjoy the tax emption for five years on their income from trade activities and if companies establish their presence in the remote areas, the tax emption can be extended to ten years. To boost foreign direct investment the Investment law No 8 was developed however, this law is applicable only on few sectors. General Authority for Investment and Free Zones regulates the companies operating in free zones. The corporate tax rate in Egypt is 20 percent and export duties are between 5 to 25 percent of sales value and import duties are from 2 to 32 percent. On the other hand, in free zones personal tax rate is only 5 percent and other taxes range to 10 percent (Egypt State and Information Service). The companies operating in Egypt have to follow the commercial law related to commercial property, trade regulations etc (Hugerfrancer International, 2009). Therefore, western brands like Marks and Spencer can find legal environment of Egypt really favorable for their company. Environment Ministry of State for Environmental Affairs is responsible to manage the environmental issues and concerns in Egypt. According to Egyptian President Honsy Mubarak (1997), environmental laws and regulations in Egypt would be strictly regulated without any hesitation and reluctance (MSEA, 1997). Environmental laws and regulations in Egypt are not very strict however, they are up to the international standards, and therefore, a multinational company like Marks & Spencer which is already having a strong environmental sustainable strategy is never at disadvantage. Competitor Analysis International Buying Services have been operating in Egypt for the last nine years and the company is exporting to the world’s famous brands like Tommy Hifiger, Marks & Spencer etc. If Marks and Spenser target the Egyptian market, then International Buying Services will appear as one of the major competitors of the company. Arjet Imports is another top Apparel company in Egypt and the target market of the company is the women group and the company is expanding its business by importing more and more apparel stuff. Tanta International Trade Point is another company dealing in yarn, textile and apparels in Egypt. Cesar Trading Corporation is another Egyptian garment exporters company and because of the competitive prices the company has achieved significant visibility in Egyptian market. Another name in Egypt Apparel Industry is the name of Trade and Commercial Union which exports Apparel and Textile stuff to various countries. Actually there are many small and large companies operating in Egypt Textile industry and they are the direct competitors of Marks & Spencer. Actually consumer is Egypt are not very brand conscious rather they are more price conscious therefore, Marks & Spencer will face huge competition in the Egyptian market however, nature and strength of competition also depends on the target market which company will target. The most of the companies operating in Egypt Apparel market have kept their prices competitive. Customer Analysis The average income level per household in Egypt is very low as compared to the western economies, therefore, to keep its profit margins up to the desirable level, M&S has to target medium to higher income group segments. The following graph gives an idea about the Payscale variability in Egypt and it shows that professionals are earning significantly higher salaries. Therefore, the market segmentation will be done based on demographics (age, income, profession). M&S is recommended to target higher income and young customers because of the hype of western wear among them. Source: Payscale website Egypt customers still prefer traditional mode of shopping over online shopping. Egyptians are the world’s slowest adopters and around 67 percent of the population has never shopped online (Nielsen, 2008). Another important fact about the buying behaviour of Egypt is that because of strong family structure, the buying decisions are influenced by family in Egypt. This buying behaviour of Egyptians is also because of the collectivism in their culture. Although Egyptian government is making huge efforts to attract international brands in Egypt and a commercial plaza plan is being also implemented however, the Egyptian consumers are not much influenced by western brands. If M&S enters into Egypt market, an average consumer might not be much attracted by the company however, the new generation and high income groups are fond of western brands and appear to a be a profitable niche for M&S. SWOT Analysis To analyse the strengths and weaknesses of M&S in the Egyptian market and to determine the opportunities and threats which the company could face in this market, a SWOT analysis has been conducted. Strengths Weaknesses Less interference of Egyptian government will be a major strength for M&S High quality branded products of M&S is a strength of the company to compete with Egyptian local and internal brands Strong financial position of M&S and low cost of investment is a strength of company to invest in Egyptian market The growing western trends among youngsters in Egypt and kind of M&S products The western style clothing of M&S is a weakness for company in Egyptian market as more product strategies will be required to target Egyptian consumers M&S is usually associated with high prices and high quality image which could be a weakness of the company in Egyptian market because most of the brands in Egypt are good quality and low prices brands Niche wearing western clothes is not very large therefore, if M&S offers western clothes then it might not be able to expand its customer base. Opportunities Threats Growing Egyptian market is expanding customer base for M&S thereby, increasing the opportunity for M&S to improve expected sales After starting clothing line, M&S can penetrate into other product markets More flexible policies of Egyptian to promote FDI is a huge opportunity for M&S Low number of western brands in Egypt thereby, providing opportunity to M&S to achieve a relative first mover advantage Lower taxes as compared to other economies therefore, M&S will get the opportunity to reduce tax expense Growing economy and developing infrastructure will offer M&S more opportunities to expands its business to other Arab countries Potential risks of political instability is high which like other firms can also impact operations of M&S Higher number of average lower income group will reduce the target market for M&S Difference in western culture and Egyptian culture could deteriorate the image of M&S in the world market Recommendations Being a consultant I will suggest that Egypt appears to be an attractive market for M&S however, I have few recommendations for the company to enter into Egypt market. Egyptian economy is a growing economy and foreign investments are increasing because of the recent reforms and potential prospects in Egypt therefore, investing in clothing industry of Egypt can be very profitable for M&S. Although socio-cultural environment of Egypt is very different from western culture however, the growing young population and their changing life styles create huge business opportunities for western apparel brands. Still M&S can develop clothing styles based on local Egyptian market trends to improve its marketing penetration. Legal environment of Egypt is also suitable to start independent operations in Egypt; however, being a Muslim state, M&S should research on the legislative framework in detail. Industry perceptual mapping shows that M&S has to work on its pricing strategies to target the locals of Egypt because of their low income level and availability of substitutes Egypt has a collectivistic culture therefore; the promotions of the products should be developed in consideration to this. Bibliography Allisa, S., 2007. The Political Economy of Reform in Egypt: Understanding the Role of Institutions. [Online] Available at: http://carnegieendowment.org/publications/?fa=view&id=19660 [Accessed 13 October 2010]. Colijn, L., 2010. Country Report Egypt. [Online] Available at: http://overons.rabobank.com/content/images/Egypt-201004_tcm64-75066.pdf [Accessed 13 October 2010]. Cook, S., 2009. Political Instability in Egypt. [Online] Available at: http://www.cfr.org/content/publications/.../CPA_contingencymemo_4.pdf [Accessed 12 October 2010]. Coq, L. C, 2010. Google eyes growing internet users in Egypt and region. [Online] Available at: http://www.zawya.com/story.cfm/sidZAWYA20100825044732/Google%20Eyes%20Egypt [Accessed 12 October 2010]. Earthtrends., 2003. Population, Health and Human Wellbeing. [Online] Available at: http://earthtrends.wri.org/pdf_library/country_profiles/pop_cou_818.pdf [Accessed 12 October 2010]. EENI, n.d. Country Summary: Doing Business in Egypt. [Online] Available at: http://en.reingex.com/Egypt-Business-Economy.asp [Accessed 12 October 2010]. Egypt State Information Service. n.d. Industry Along History. [Online] Available at: http://www2.sis.gov.eg/En/Economy/Sectors/Industry/050303000000000001.htm [Accessed 12 October 2010]. Furnex Egypt. 2010. The Egyptian Home Textile Industry. [Online] Available at: http://www.furnexegypt.com/textilesindustry.asp [Accessed 12 October 2010]. Hugerfrancer International. 2009. Doing Business in Egypt. [Online] Available at: http://www.hfi-international.com/publications/Doing%20Business%20in%20Egypt%2009.pdf [Accessed 12 October 2010]. Kirpalani, V. H. 1990. International business handbook:: Volume 1 of Haworth series in international business. Routledge. Kjeilen, T. n.d. Economy. [Online] Available at: http://i-cias.com/e.o/egypt.economy.htm [Accessed 12 October 2010]. MSEA, 1997. Egyptian Environmental Agency Affairs. [Online] Available at: http://www.eeaa.gov.eg/ [Accessed 12 October 2010]. Nielsen. 2008. Trends in Online Shopping. [Online] Available at: http://th.nielsen.com/site/documents/GlobalOnlineShoppingReportFeb08.pdf [Accessed 18 October 2010]. Payscale. 2010. Payscale Egypt. [Online] Available at: http://www.payscale.com/research/EG/Country=Egypt/Salary [Accessed 18 October 2010]. SEAM Project. n.d. The Textile Sector. [Online] Available at: http://www.eeaa.gov.eg/seam/Manuals/TextileSectorReport/Part%20A.PDF [Accessed 12 October 2010]. Read More