Situation Analysis of International Marketing Environment - Case Study Example

I. Introduction Denmark is one of the countries in the European regions, which is a good prospect for foreign expansion for a company like Marks & Spencer due to its good business climate as indicated by macro environmental dimensions. In order to see if Denmark is indeed a good prospect, situational analysis should be conducted. This paper aims to see if Denmark is a viable prospect by conducting country analysis, industry analysis, competitor analysis and customer analysis for the country. Overall assessment is based on various frameworks such as PEST analysis and Porters five forces framework, etc. II. Body A. Country analysis In order to assess countrys macro environmental variables, a framework like the PEST analysis is usually used. PEST analysis, short for Politico-Legal, Economic, Socio-Cultural, and Technological analysis tries to lay down the different forces that can affect the company according to their respective dimensions. However, the quality of the analysis depends on the sources where information are collected. For this PEST analysis, information is gathered from legitimate publications and secondary data sources such as The Economist Intelligence Unit, Datamonitor, I.H.S. Global Insight, EIU ViewsWire, and Oxford Economic Country Briefings. The political landscape of Denmark has been revered as one of the most effective in terms of governance as the government has continued to focus on extensive welfare policies as well as country regulations (PREMIUM COUNTRY PROFILE SERIES: Denmark 2008, 13-15; 25-27). Institutional reforms have also been enacted, which will ensure more efficiency on the part of the public sector (PREMIUM COUNTRY PROFILE SERIES: Denmark 2008, 13-15; 25-27). All these has made Denmark a good destination for foreign investments, because of the business-friendly policies that the country has which has made it one of the freest economies in the world, such as the recent labour market commissions, which aim to provide flexibility in the labour markets as well as incentives to investors (PREMIUM COUNTRY PROFILE SERIES: Denmark 2008, 13-15; 25-27). Denmark has adopted EU policies in order to further its economic progress and stability. One of the major issues on the political landscape of the country is the growing security issues because of the tension between Denmark and many Islamic nations because of the countrys anti-Islamic views (PREMIUM COUNTRY PROFILE SERIES: Denmark 2008, 13-15; 25-27). This can be a serious threat to the country. The countrys economic landscape has been proven as not immune to the global financial crisis. In 2009, the country has its greatest contraction in terms of GDP during the past 50 years at 3.9% (Denmark Country Monitor 2009, 45-57). Because of the fall in global demand, the countrys exports have also been affected (Denmark Country Monitor 2009, 45-57). However, it is believed that the countrys economy has reached the lowest that the crisis can bring and that it slowly recovers (EIU ViewsWire 2009). On the more positive note, Denmarks economy is expected to get better with expansionary fiscal policies. The effect of this contraction is also a bit lessen by the rising wages as well as the lower corporate and income taxes during the year (Denmark Country Monitor 2009, 45-57). Private consumption has gone down and it is not yet expected to be up as consumers keep from spending (Oxford Economic Country Briefings 2009). Also, unemployment is also expected to go up in the next few months (Oxford Economic Country Briefings 2009). However, due to the countrys large trade surplus, Denmark can lessen the effects of the financial crisis. For Denmarks social landscape, the countrys extensive welfare programs over the year has resulted in high human development index and flexible social security system (PREMIUM COUNTRY PROFILE SERIES: Denmark 2008, 19-21). The major drawback for Marks & Spencer in entering Denmark is the labour shortage in the country; this is partly attributable to the countrys lower level of educational skills and its ageing population (PREMIUM COUNTRY PROFILE SERIES: Denmark 2008, 19-21). Because English is a second language to Danish with most people speaking it, Denmark is a good prospect for Marks & Spencer (Denmark Career Advice 2005). For the Danish, wears and dress code are more informal than the rest of Europe and North America (Denmark Career Advice 2005). This can also be a good thing for Marks & Spencer. One of the differences between the Danish and the British and North American culture however is its being group-oriented when it comes to decisions. In terms of management, this should be one consideration of the company. Denmark has a well developed technological infrastructure. In terms of conducting business, this one can benefit Marks & Spencer as well. However, although the country has made reforms on its R&D and innovation strategy and has been ranked as one of EUs most innovative countries, its level of spending for R&D as a percentage of GDP has been declining. Denmark, being the country with the highest rates of internet penetration, mobile phone penetration and e-business implementation in Europe (PREMIUM COUNTRY PROFILE SERIES: Denmark 2008, 22), this is a huge opportunity for M&S to bank on. B. Industry analysis Marks & Spencer is a multi-line retail company that operates in various industry. Some of these industries include food retail and apparel retail. In order to prepare and know the risks of entering these industries in the Danish market, these industries have to be assessed first. A very useful tool for assessment of the industry is Porters five forces framework. By looking at the five forces that affect the dynamics in the industry, benefits against the risk of entry in the industry is assessed. However, the weakness of this model is that it requires judgement in assessing if the industry force is high, moderate or low. For this analysis, legitimacy of sources is also a requisite in order to come up with a valid conclusion. Therefore, secondary data sources including Datamonitor, Market: Europe, etc. are used. The Danish apparel industry is estimated to be at $6.3 billion in 2008, a 2.1% growth from the previous year (Datamonitor: Denmark Apparel Retail 2009, 11). Denmarks apparel industry contributes to 1.50% of the total apparel sales in the European region (Datamonitor: Denmark Apparel Retail 2009, 11). The industry is divided into three segments: womenswear which comprises 52.40% of the total industry sales in 2008; menswear, which comprises 29.60%, and infantswear with 18.00% (Datamonitor: Denmark Apparel Retail 2009, 11). As retailers can differentiate their styles and clothing offers, the power of buyers are lessened. But because of this differentiation which results to brand loyalty, because of lower switching costs among brands, buyer power is increased (Datamonitor: Denmark Apparel Retail 2009, 12-14). Therefore, the purchasing power of consumers in the industry is assessed as low to moderate. Supplier power is also low to moderate in this industry—with the presence of lower costs suppliers from areas such as China where labour costs are lower, the supplier power is weakened (Datamonitor: Denmark Apparel Retail 2009, 12-14). As for threat of entrant, setting up costs for a new apparel retail stores are relatively low, which is apparent in the many small and medium scale enterprises in the industry; therefore this threat is high (Datamonitor: Denmark Apparel Retail 2009, 12-14). Threat of substitute to the apparel retail is weak, where substitutes include buying directly from manufacturers, usually via the internet (Datamonitor: Denmark Apparel Retail 2009, 12-14). With all these, the rivalry in the Danish apparel industry is assessed as moderate. The Danish food retail industry is valued at $20.9 billion, with a growth of 2.6% in 2008 (Datamonitor: Denmark Food Retail 2009, 12). Denmarks food retail industry is 1.40% in terms of total sales in the food retail industry in the European region (Datamonitor: Denmark Food Retail 2009, 12). Buyer power is moderate in the industry. This is because of the low switching costs for consumers (Datamonitor: Denmark Food Retail 2009, 13-19).. Supplier power is also moderate as retail outlets need to enter long-term agreements with suppliers in order to ensure that they will not run out of stocks (Datamonitor: Denmark Food Retail 2009, 13-19). The threat of new entrant is moderate in the Danish food retail industry—although huge retailers enjoy economies of scale which can make them offer huge price discounts, entry and exit costs are relatively low (Datamonitor: Denmark Food Retail 2009, 13-19). Therefore, its easy for new entrant to get in, and get out if they happen to be crushed by the larger retailers. The threat of substitute is weak in the Danish food retail industry, as its major substitute, food service, is only an occasional accompaniment (Datamonitor: Denmark Food Retail 2009, 13-19). Overall, the rivalry in this industry is strong; because of low switching costs to consumers, in order to retain or re-capture them, companies may resort to price wars (Datamonitor: Denmark Food Retail 2009, 13-19). C. Competitor analysis Three leading companies are identified in the Danish apparel retail industry: H&M Hennes & Mauritz AB which is based in Stockholm, Sweden; Industria de Diseno Textil S.A which is based in Spain; and Ic Companys A/S which is based in Kobenhavn S, Denmark (Datamonitor: Denmark Apparel Retail 2009, 15-20) . H&M carries national brands and private label merchandise in 33 countries where its 1,738 stores operate (Datamonitor: Denmark Apparel Retail 2009, 15-20) . The company is only involved in procurement as well as sales of merchandise. In contrast, Inditex (Industria de Diseno Textil SA), is a company that designs, produces and distributes textiles. Under Inditex are specialized fashion companies which include different retail formats such as Zara, Pull and Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterque (Datamonitor: Denmark Apparel Retail 2009, 15-20) . The nearest to M&Ss brand proposition is Denmarks own IC Company which both designs and sells a range of clothing for quality-conscious consumers (Datamonitor: Denmark Apparel Retail 2009, 15-20) . Its brands include Jackpot, Cottonfield, InWear, Matinique, Part Two, Peak Performance, Saint Tropez, Designers Remix Collection, Soaked in Luxury, Tiger of Sweden and By Malene Birger (Datamonitor: Denmark Apparel Retail 2009, 15-20) . The company operates in 13 countries, mostly in the EU community, with 22 factory outlets and 207 company-owned stores (Datamonitor: Denmark Apparel Retail 2009, 15-20) . For the Danish food retail industry, three companies are identified as major players: Dansk Supermarked which is based in Højbjerg, Denmark; Coop Danmark which is based in Albertslund, Denmark; and Reitangruppen which is based in Trondheim, Norway (Datamonitor: Denmark Food Retail 2009, 20-23). Dansk has 1,270 retail outlets in different countries such as Denmark, Germany, UK, Poland and Sweden (Datamonitor: Denmark Food Retail 2009, 20-23). It is the largest in Denmark. Coop Danmark operates 740 stores nationwide in different formats—supermarkets, hypermarket, and discount store. Its brand names include Kvickly, Kvicklyu xtra, DagliBrugsen, SuperBrugsen banners, and LokalBrugsen (Datamonitor: Denmark Food Retail 2009, 20-23). It has 1,100 stores across the Nordic region which include retail chains that carry groceries, kitchenware and home ware, sports, DIY and electrical goods (Datamonitor: Denmark Food Retail 2009, 20-23). Reitangruppen, the company based in Norway, is a retail franchiser and wholesaler which owns REMA 1000, 7-Eleven, HydroTexaco, Easy21, Narvesen, Spaceworld and Pressbyran (Datamonitor: Denmark Food Retail 2009, 20-23). D. Customer analysis Danes confidence on the economy has been on a constant decline since 2007 (Market: Europe 2007). Due to anticipation of higher unemployment in the coming periods, the Danes have been sceptical in increasing their spending, which results in overall decrease in consumption for the economy (Market: Europe 2007). This has been apparent in the countrys national psychology which has been coined as savings at present due to uncertainty (Market: Europe 2007). One notable insight from consumers however which is significant to Marks & Spencer food retail operations is their attitude toward functional food-- “Consumers in Denmark and other Nordic countries react with scepticism to many of the health claims made regarding functional foods, according to a joint study concluded in June 2009 by the Danish MAPP Food Centre in Aarhus and the Danish Institute of Food Technology (DIFT) (Just Food 2009).” Also, according to Martensen, Grempty, & Kristensen, for the Danish market in their study, the drivers of consumer loyalty and satisfaction in an industry like supermarkets is the companys image (2000). This is an important consumer insight for Marks & Spencers future operations. E. SWOT analysis for Marks & Spencer Marks & Spencer over the years has built its brand over a clear and distinct positioning of providing quality items to consumers. In line with this, the company has adopted the green positioning to be incorporated in its brand (Marks & Spencer 2009; Businessweek 2009). The companys brand as a global marketer, is a strength to the company. As for Marks & Spencers weakness, its lack of experience in the Danish market can be a disadvantage to the company. There are a lot of opportunities waiting for the company in Denmark. Because most Danish speak English as a close second language, with regard to marketing communications, this can provide the company with further economies of scale by not having to come up with another set of marketing communications for the country. The ICT infrastructure in Denmark is very sophisticated, and it has the highest rates of mobile phone penetration and internet penetration—huge opportunities for Marks & Spencers on-line operations. For the threats, the increasing anti-Danish movements in many countries is a serious threat to the countrys security. The strong rivalry in the food retail industry in the country is also a threat to the companys future operations. Finally, the effects of the financial crisis on the country can also be a challenge to the company. III. Conclusion Denmark proves to be a viable target country for Marks & Spencer. With the countrys favourable macro environmental variables, prospects of profitability in industries like the apparel retail where rivalry is moderate, as well as plenty of opportunities. Although the Danish economy is not immune with the effects of the crisis, it can lessen the effects with its huge trade surplus. This can increase the performance of the economy. All in all these make Danish consumers attractive as new market for Marks & Spencer. References 2005. "CULTURAL ADVICE." Denmark Career Guide 84-85. Business Source Premier, EBSCOhost (accessed October 18, 2009). 2007. "Danish consumer confidence down." Market: Europe 18, no. 5: 4. 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