Marketing and Distribution Research in Business - Case Study Example

? International market entry strategy Contents Contents 2 of the chosen organization and its entry opportunity 3 Justifying the choice ofthe host country 3 PESTEL Analysis 3 Evaluating relevant entry strategies 5 International organization strategy 7 Summary 7 References 8 Description of the chosen organization and its entry opportunity The organization taken into consider for discussion is Tesco PLC. It is a multinational general and grocery merchandise retailer founded in 1919 by Jack Cohen. Tesco is the largest retailer in UK with 30% of total market share and the third largest in the world. As on 2012, the total revenue of the company was ?64.539 billion. There are a number of factors that has influenced the firm to opt for internationalization. These factors include both pull and push factors. The push factors include the saturated local market, matured economy, high capital gain from the local market (UK market). The pull factors would include the degree of foreign market attractiveness, opportunity for quality production at a relatively low cost and the opportunity to attain economies of scale. Hereby it is to be added that all the pull factors have been mentioned by keeping China in the focal point of interest as the country is the target market. The details would be provided in the latter half of the study (Czinzota, Ronkainen, Moffett, Marinova and Marinov, 2009, pp. 423-429). Justifying the choice of the host country PESTEL Analysis Political Factors: During the early 80’s China had a closed economic policy and there was very little encouragement on the part of the government in terms of the investments to be made by the international companies. But things changed as the government focused on the educational policies which lead to an increase in number of the skilled workers in the country. But, there were not enough job opportunities for the skilled workers (Henry, 2008, p. 89). Therefore, the government realized the importance of the presence of the international firms in the country. The government finally decided to enter WTO and in the month of December, 2001 the country became an official member of WTO. This meant that China would be following the WTO regulations. This was the beginning of the emergence of the country as one of the fastest growing economies. As far as retail industry is concerned, the government is looking to shut down the traditional wet shops to promote organized retailing (Kolb, 2008, p. 92). The main objective is to create a network of chain of retail markets in the eastern provinces of the country. The efforts of the government are also paying off as retail has become of the most important industries in the country. As on 2009, the country had total of thirty five retailers out of the top fifty retailers in the world. The ministry of commerce provided approval to more than one thousand retailers in the country with a contractual FDI of $1.9 billion in the year 2005 (Brown, 2009, p. 209). Economic Factors: Due to the new revised policies the country witnessed a rise in the GDP. The GDP in the year 2009 was 335,353 million. This meant that there had been a 7% rise as compared to the last year. Another noticeable factor has been the per capita rise in the net income of the rural households of the country which was 5153 Yuan at the end of 2009. This meant an overall 8.5% increase. The rise in the per capita income acted as the boost towards disposable income of the people which witnessed a percentage growth by 9.8%. It clearly shows the fast paced economic progress of the country. Social Factors: Tesco’s the main focal point in the social factors would be the cross cultural difference of the people of the country. The Chinese culture is diverse and is totally different from that of the Western culture. However the shifts in the economy of the country led to a rise in the disposable income of the people of the country and as a result the mindset and the lifestyle of the people improved. The shift in the consumer behavior is a welcoming sign for the retailers. However, here it needs to be mentioned that unlike the western consumers, the consumers of China focus a lot more on utility rather than brand name. This something the retailers like the Tesco have to keep in mind (Belch and Michael, 2005, p. 325). Technological Factors: China has a vast landmass. Also the infrastructure of the nation may not be of the standards of the Western nations. Therefore it would be essential for the company to have a series of warehouses at key strategic locations. This would help the company to outsource the channel and distribution activists to the local distributor who have great local knowledge. Also finding suppliers having necessary IT capabilities could also be a challenge. China has better infrastructure than most of the developing countries. The government is also encouraging the businesses as well as the individuals to adopt advanced information systems. Environmental Factors: The Chinese government has abolished the use of the plastic bags. The government also has contributed continuous efforts to introduce programs through the national economy and social progress plan. Also due to the increasing amount of international pressure, the Chinese government has become sensitive to pollution and hence there is likely to be strict control on the firms to ensure environmental safety (Porter, 1980, p. 221). Legal Factors: One of the major challenges for the foreign companies operating in China would be the protection of Patent. In China there are no such major regulations that would prevent copying of intellectual properties. Evaluating relevant entry strategies While entering an international market one of the major decisions to be made is to consider the mode of entry. Such decisions can often make or break the future of a company in the international market. One of the options available to the country would be of exporting. In this case the companies would produce goods in the home country and the goods would be made available in the host country (Kotler, 2001, p. 25). Exporting could be of different types such as direct, piggybacking, and indirect exporting. Another option that could be used by the company would be of licensing. International licensing is mainly used by the companies that have expert and competitive manufacturing process. Licensing agreements usually last for fifteen to twenty years. This helps the marketers to gain fast paced market penetration. The international franchising is mainly visible in the service sectors such as the educational business, food chains, health care. In case of franchising the domestic companies are known as the franchisers and the international firms are known as the franchisee. Strategic Alliance is the co-operation and the collaboration between the two firms to achieve common strategic goal. In this way the market risks are shared by the low participating firms. Another widely used mode of entry by the marketers is Joint Venture. Joint Venture is used when the company is looking to take full control over the market (Burgemeister, 2003, p. 192). In case of joint ventures two or more companies would look to gain competitive advantage by coming together. There is also organic market entry strategy in which the countries look to enter the markets on their own. While entering the Chinese market, Tesco should choose a strategy through which the political, social and economic risks could be reduced. Also the company would need to gain knowledge and insights about the consumer behavior of the people of China. Hence it is suggested that the company should go for joint venture as the main objective is to take control of the whole of the market and make substantial presence in the country. This is also well supported by the fact that retailers like Carrefour, Wal-Mart has presence in the market and those retailers have also used the joint venture. Tesco had gone for organic strategy in USA which turned to be a huge mistake and hence this should not be repeated again. As far as entry timing is concerned the economic conditions should be kept in mind. Also the company should consider the local holidays and events while entering the international market (Griffin and Michael, 2012, p. 113). International organization strategy Tesco should most certainly go for multi domestic strategy. In this case the company should recruit local people for key positions in the operations in china, because the local Chinese people would have better understanding of the market and culture of the country. However, it would be equally important for the company to ensure that the local employees embrace the organizational values and norms and hence presence of international personnel would be equally important especially in the early days. The company should use a relatively flat organizational structure to ensure less monitoring and maximum output. But the roles of each and every employee and the norms and regulations should also be made clear (Churchill, 2009, p.211). Summary To summarize it can be said that the China is one of the fastest growing economies in the world. Since the entry of the country in WTO, it has made phenomenal economic progress. The life style and the disposable income of the people have improved. Retail is one of the most important industries in the country and the government has taken various initiatives to strengthen the industry. The economic, social, political factors are in favor of Tesco. Since Tesco wants to make substantial presence in the country, it is suggested that the company should go for joint venture. Also the company should use multi domestic organizational strategy to ensure proper communication and smooth operations with the perfect mix of centralization and decentralization. References Belch, G and Michael, G. 2005. Advertising &Promotion-An Integrated marketing Communications Perspective. UK: McGraw-Hill. Brown, L. 2009. Marketing and Distribution Research. USA: Ronald Press Company. Burgemeister, S. 2003. Market analysis. DE: GRIN Verlag. Churchill, G. 2009. Marketing Research. UK: Cengage Learning. Czinzota, M., Ronkainen, I., Moffett, M., Marinova, S. & Marinov, M. 2009. International business (European edition). UK: John Wiley. Griffin, R. W., and Michael, P. W., 2012. International Business-seventh edition. UK: Pearson. Henry, A. 2008. Understanding Strategic Management. UK: Oxford University Press. Kolb, B. 2008. Marketing Research: A Practical Approach. UK: Sage. Kotler, P. 2001. Marketing Management. UK: Prentice Hall. Porter, M.E. 1980. Competitive Strategy, USA: Free Press. Read More