Business Strategies of Marks and Spencer towards Their Business Expansion into China - Essay Example

Situational analysis of international marketing environment Table of Contents Situational analysis of international marketing environment 1 Table of Contents 1 Analysis of the Marketing Environment 3 Country Analysis 3 Industry and Competitor Analysis 5 Porter’s Five Forces Model 5 PESTEL 8 Customer Analysis and Positioning 9 Market Screening 10 SWOT Analysis 13 Strengths 13 Weakness 13 Opportunities 13 Threats 13 Conclusion 14 Evaluation of Frameworks 14 Recommendations 14 References 16 Introduction The era of globalisation has created a change in the business environment with business organizations expanding their businesses beyond national borders. It has also enhanced the competition levels in the market that has led to severe price wars among the organizations. It has also increased the number of choices for customers as they are flooded with numerous options for purchase (Stark, 2011, p.6). The present study would analyse the business strategies of Marks and Spencer towards their business expansion into China. Marks and Spencer is one of most established players in the retail industry with a large array of products ranging from food to apparels (Marks and Spencer, 2011). The company was established in the year 1884 by Michael Marks and since then has grown rapidly to about 600 stores in UK alone employing about 75000 individuals across the globe in diverse markets (Marks and Spencer-a, 2011). However the aspect of international expansion must be handled with caution as one of the most important mistakes made by multinational firms involves undermining the aspect of local sentiments and beliefs that can lead to disastrous consequences in terms of positioning of the brand in the new foreign markets. The company has a dedicated presence in about 40 nations across the globe. Analysis of the Marketing Environment Marketing environment plays a crucial role in any business; in this case the report would examine the marketing environment of China in which the company tends to expand its business. Country Analysis China holds considerable promise for Marks and Spencer for expanding its business as the nation holds a good position with regards to ease of doing business. According to a report published by the World Bank China ranks 79 among all the nations with regards to ease of doing business preceded only by India, Brazil and Russia among the emerging markets (IFC, 2011, p.2). In addition China is also the highest populated country of the world and its recent strides in economic growth have led to making it one of the major markets for retailers across the globe (BBC, 2011). Cities like Shanghai and Beijing score high on the list of international companies trying to expand internationally due to good market potential (CB Richard Ellis, 2011, p.3). A research study conducted to analyse the consumer behaviour states certain key trends of the Chinese consumers that includes a good growth in consumption patterns, greater sophistication of the consumers, a reduced trade up of products and brands, shift towards brand value and brand image and finally display of greater smarter purchasing trends among the consumers. In addition to this the Chinese consumers have also become more inclined towards better service and are also influenced to some extent by Western brands. This can be very well leveraged by Marks and Spencer to make a successful foray in the Chinese market. However cultural issues must be accordingly included in the business strategies as the Chinese consumers are known to be highly inclined towards their culture and hence ignoring local cultural sentiments and beliefs can lead to disastrous consequences for the organization in the Chinese market (McKinsey & Company, 2009, p.7-12). Industry and Competitor Analysis Porter’s Five Forces Model The analysis of the competitive environment for Marks and Spencer in the Chinese model can be analysed using the five forces model proposed by Michael Porter. The five forces are stated below: Bargaining Power of Buyers Bargaining Power of Suppliers Threat of new Entrants Threat of Substitutes Competition among existing Players (Harris, 2006, p.146) Figure 1: Porter’s Five Forces Model (Source: Hill & Jones, 2009, p.43) Bargaining Power of Buyers Bargaining power of buyers is large when customers have a large number of options to choose from. In case of China there are a significant number of both domestic and international players in the retail industry including players like Wal-Mart. However considering the fact that most of the retail chains are domestic hence consumers do not have large number of choices when it comes to international brands. Hence the bargaining power of consumers is medium in the Chinese market (Deloitte, 2010, p.26-27). Bargaining Power of Suppliers Suppliers hold considerable importance fort a business organization. China has a large number of suppliers however Marks and Spencer would use its own network of suppliers and try to source most of its products from its presents suppliers in Europe accept for certain category of items. The large number of suppliers makes the bargaining power of suppliers low in the Chinese market. Threat of new Entrants New entrants pose considerable threats when the entry barriers for establishing a new business are very low. This again is dependent upon the level of expertise of the market players already present in the market and the extent to which they fulfil the needs and wants of the customers. However, considering the case of Mars and Spencer it would only be affected by large multinational players that would act as competitors to the organization. Foreign companies in China still face considerable legal hurdles that make it difficult to set up business, hence the threat of new entrants is low in the Chinese retail market (Lu, 2011). Threat of Substitutes Substitutes include products or services that have a similar nature of product features and can serve as competitors to the brand. Substitutes for Marks and Spencer would include local retailers that are traditionally based in China. The growing influence of westernisation over the Chinese population have made foreign brand quite popular in the Chinese market. Moreover with a better service delivery mechanism and a superior service mix the threat of substitutes is very low in Chinese market. Competition among existing Players The Chinese market is characterised by the presence of numerous domestic players as well as international chains like Wal-Mart and TESCO. The level of competition has grown since the opening up of the economy. According to a report published by Deloitte the Chinese market has become largely concentrated with a large number of players including foreign retailers. Thus the extent of threat of this force is quite high in the Chinese market (Deloitte, 2010, p.26-27). PESTEL PESTEL is an acronym for Political, Economic, Sociological, Technological and Legal factors that is largely used to analyse the external environment of any region or market (Kay, 2010, p.23). Political China has an autocratic government that is run by the communist part of China. The political leadership is largely keen on bringing in foreign players into the market. However, the government still has considerable restrictions on the new foreign players as there are many categories that are still not under free trade. However the political system is stable and is generally inclined towards benefit of business organizations (Chinese Information Centre Co-operative Ltd, n.d.). Economic Since the liberalisation of the economy China has emerged as one of the fastest growing economies of the globe registering GDP growth rates of 10.3 percent as of 2003. The GDP level in terms of purchasing power parity is approximately 10.09 trillion US dollars as of 2010 making it an attractive destination for retailers like Marks and Spencer (CIA, 2011). Sociological China is the most populous nation of the world with majority of individuals in the age group of 15-64 years. The median age of the nation is 35.5 years. In addition the rate of urbanization that is a crucial aspect of retailers like Marks and Spencer is about 47 percent with an annual increase of 2.3 percent. Approximately 92 percent of the population is literate making it a god market in terms of business potential for retailers like Marks and Spencer (CIA, 2011). Technological China does not have a very high technological backdrop and is largely characterised by fake and piracy of technology with poor technology in terms of quality. Environmental China does not have very strict environmental laws however there are laws for bringing about environmental sustainability. Marks and Spencer has an effective strategy of sustainability that would help in compliance with he Chinese laws. Legal China has a legal system that is based on the traditional European and Soviet legal systems. The nation however does not accept the jurisdictions of the International Court of Justice (CIA, 2011). Customer Analysis and Positioning Marks and Spencer would target upper and high income group individuals as a part of the target market. The company would initially target top cities like Shanghai and Beijing and after break even it would target other cities and town and penetrate in the market. The company would position itself as a retailer of luxury brands selling imported luxury items that would include premium products like apparels, lifestyle products etc. The positioning strategy of Marks and Spencer would largely use its exiting brand image to attract and position itself in the minds of the target customers in the Chinese market (Blankson, 2004, p.315). In addition to this loyalty and reward programmes would also be introduced that would help position the company as a mark of quality in the minds of the target audience. Effective brand promotional strategies including a ‘glocalisation’ approach of thinking globally and acting locally would be used to target the market audience (Phatak, Bhagat & Kashlak, 2006, p.209). The company would essentially use a pull strategy to attract new consumer segments. The pull strategy would be essentially based on using the company’s exiting brand name and image to attract new consumers in the new market. A promotional strategy would accordingly be crafted to help the company achieve its objectives. Market Screening Marks and Spencer would essentially screen the market using a market research that would help the company screen out the possible customer segments and then undertake an analysis to identify the target market including possible locations to initially start operations in the Chinese markets. An analysis of consumer behaviour of the target market respondents would also be undertaken to develop a suitable service mix so as to gain a strategic foothold in the Chinese market. The process of market screening would involve five steps namely, preliminary screening, secondary screening, Third screening, fourth screening, fifth screening and final selection. The primary selection would involve analysing whether the market has any requirement for the company’s products and services. The Chinese market after its liberalisation of the economy is being continuously influenced by Western brands and there is a growing demand for high quality service that makes the market a good choice of Marks and Spencer. Secondary screening would involve analysing the macroeconomic trends of the nation and market. The Chinese market post liberalisation boasts of a nation with highest GDP growth rate ensuring huge disposable income levels with a healthy inflation rate. This again makes China a good investment destination for Marks and Spencer. The third stage of screening involves analyzing the politico legal factors of the market. The Chinese government is autocratic and still pursues policies that favour domestic industries. This makes it a challenge to cope with the strict laws and regulations. The fourth stage involves analysing the socio cultural aspects including consumer behaviour. The Chinese consumers are known to have a strong cultural background and hence socio cultural factors have a considerable importance on the business strategies of the company. The fifth stage of analysis involves analysing the competition in the market. The Chinese market is flooded with domestic players that have a poor quality aspect. However the market also has presence of players like Wal-Mart that can offer competition to Marks and Spencer. The final stage of screening involves field visits and market research so as to find sufficient data for formulating a customised product and service mix for the new market (Seyoum, 2008, p.76-77). Figure 2: Perception Mapping (Source: Oxford University Press, n.d., p.254) The figure above highlights a perceptual map that essentially includes the retail sector. The red dot in the figure represents the possible location of Marks and Spencer in the perception map. Marks and Spencer would position itself as a store with high levels of convenience and good quality and high on trendiness aspects. The brand image and appeal of the company would largely contribute towards attainment of the objectives of the company in the Chinese retail market. SWOT Analysis Strengths The biggest strength for Marks and Spencer is its high level of quality in service and products. Moreover the company also has well trained employees that add value to the customers. In addition other strengths of the company include a unique and excellent store ambience that makes its one of the best in its categories. The high degree of customer service also helps generate a good positioning of the brand and the company in the minds of the customers. Weakness Some of the potential weaknesses of the company include absence of proper inventory management and a supply chain strategy. The online channel and its delivery mechanisms also have considerable weakness that needs to be addressed by the company. Opportunities Opportunities for Marks and Spencer mainly exists in the form of expansion to new and potential markets like India and China that have considerable scope for the company in terms of a good market. Moreover a strong leverage of internet marketing and online stores can also add value and boost up the competitiveness of the company. Threats The threats to the company mainly arise from the high degree of competition in the market. The Chinese market is characterised by the presence of small and marginal players as well as organised players like Wal-Mart and TESCO. These can pose to be major threat unless proper marketing strategies are undertaken to improve the competitive position of the company. Conclusion The analysis of the Chinese market reveals considerable opportunities. However challenges also exit in the form of strong government regulations as well as competition in the market. Moreover issues like supply chain management and procurement can also prove to be injurious to the business interests of the company. However maintain a proper strategy with a good focus and timing can also help generate a sustainable edge for the company in the Chinese market. Evaluation of Frameworks In addition to research and analysis there needs to be a mechanism that would help in acting as a tool for evaluating and monitoring the accomplishment of the objectives with the desired level. The use of a Balanced Scorecard Method would help in analysing the financial as well as non financial aspects. This would help in generating better feedbacks and would help in timely addressing any failures in the project. Recommendations The aspect of globalisation and the emergence of economies like China hold considerable potential for companies like Mars and Spencer. However the company must essentially make the foray in the Chinese market as soon as possible as the nation is being targeted by almost all the international retail brands with some like Wal-Mart already present in the market in a major way. Entering the market now would also give a first mover advantage for the company. It can then leverage on its strengths to generate entry barriers for the new players that would help it to position itself as a formidable market player. Implementation of these strategies would not only help in a successful market entry but would also help in generating long term sustainable competitive advantage for the company in the long run. References BBC. (2011). China country profile. [Online]. Available at: http://news.bbc.co.uk/2/hi/africa/country_profiles/1287798.stm. [Accessed on September 29, 2011]. Blankson, C. (2004). Positioning strategies and incidence of congruence of two UK store card brands. [Pdf]. 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